For investors looking for an alternative safe haven to gold, diamonds could be an interesting choice. Demand for these gemstones continues to grow and, like gold, diamonds have been considered a store of value for centuries. Overall, diamond consortium De Beers expects growth in the global demand for rough diamonds to reach a new record this year, based on robust demand from China, India and other Asian emerging markets. As populations in the Pacific Rim have moved up to middle class status and new wealth, the popularity of luxury goods has surged. This includes a new love affair for diamonds. De Beers expects China, India and the Middle East to account for 40% of global diamond demand by 2015. The firm also expects that strong performance in the key U.S. market will contribute to that growth.

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Widely Used for Industrial Purposes
Similar to platinum and silver, diamonds also blur the line between industrial and precious mineral. The gem has the highest hardness and heat conductivity of any bulk material, and it is used in a variety of industrial processes. Diamonds can be found in an assortment of saws and construction equipment, as well as high-tech applications like lasers, surgical equipment and in computer chip production. More than 80% of diamonds are used for industrial purposes. As the world continues to build out its infrastructure and mine for materials, diamond-based drills and equipment will continue to be in demand.

As an investment, diamonds have not disappointed. In 2010, rough-cut diamonds provided an overall return of 20%, besting the S&P 500 gain of 12.78% for the year. Analysts at the Royal Bank of Canada (NYSE:RY) predict the upward trend of higher diamond prices will continue over the longer term. (For more on emerging markets, see Re-evaluating Emerging Markets.)

Skip the Engagement Ring
For portfolios, diamonds offer an interesting investment and have been one of the best-performing commodities this year, with rough diamond prices boosted by a dearth of new mines and increasing demand. However, gaining access to the market can prove difficult. Currently there is no diamond ETF, and the few private equity funds dedicated to the gem require major investments. However, there are a few ways to play the growth.

Harry Winston Diamond Corp. (NYSE:HWD) allows investors to play both the mining side as well as the retailing side of diamonds. Partnering with Rio Tinto (NYSE:RIO), the company owns a 40% stake in Canada's largest diamond mine, the Diavik, and it recently earned roughly $134 per carat for its rough diamond production. The company benefits from being one of the premier global luxury jewelry retailers as well.

No talk about diamonds would complete without mentioning De Beers. The firm currently controls about 40% of the total diamond market. While 40% of the miner is owned by South Africa's Oppenheimer family and 15% by the government of Botswana, investors can tap the remaining 45% through mega miner Anglo American (OTCBB:AAUKY). In addition, junior diamond miner Mountain Province Diamonds (NYSE:MDM) has a 49% venture with De Beers' Kennedy Lake mine.

Finally, luxury jeweler Tiffany (NYSE:TIF) saw sales in the Asia-Pacific region rise more than 46% in the first half of 2011 and could be a great play on the growth of Asia's new middle class.

The Bottom Line
For investors looking for additional safe havens to place their money, diamonds could be an interesting bet. Benefiting from both industrial and precious status, the gemstone is seeing demand flourish on several fronts. Adding stakes in firms with diamond operations like BHP Billiton (NYSE:BHP) or Zale (NYSE:ZLC) could do a portfolio some good. (For more on diamonds, read Diamonds: The Missing Commodity Derivative.)

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