Diamond ETF

The market for precious gems has weakened over 2012 but they are beginning to stabilize in recent weeks, reflecting the improvements in the global economy. While exchange traded fund investors can’t directly invest in a precious gems through ETFs, there is a relatively new diamonds and gemstone miners ETF to watch.

The PureFunds ISE Diamond/Gemstone ETF (NYSEArca: GEMS) has gained 6.2% over the past month, compared to the 3.3% rise in the S&P 500. [A New ETF for Diamonds and Gems]

Diamond prices have been declining over 2012 as slower growth forced consumer to cut back on discretionary spending.

“The story behind these declines will be familiar to those who watch the global economy: slow growth in the U.S. was more than offset by declines in Europe and the emerging markets (especially China),” Nicholas Colas, ConvergEx Group chief market strategist, said in a recent research note.  “The good news is that pricing has in fact stabilized in recent weeks, and overall price levels are – like equities – above their 2008 level.”

While the U.S. and Europe remain the dominate markets for diamonds, Colas noted that emerging markets, like China and India, are adopting western traditions, like gifting diamond engagement rings.

However, demand for diamonds remains shaky, especially with Europe and Chinese demand weaker than expected at the start of the year. Meanwhile, U.S. demand, which accounts for half of the global market, did hold up.