FOCUS - Rising gold prices lend sparkle to diamond sales

By Aniruddha Basu and Nandita Bose

MUMBAI (Reuters) - Not everyone is complaining about the rising price of gold. Diamond jewellery makers in India are making the most of an unprecedented rise in gold prices, and have seen sales rising smartly this festive season.

With gold prices above the key level of 15,000 rupees per 10 grams, investing in the yellow metal - traditionally a safe-haven asset in India - is not being seen as a great option.

"Due to the high price of gold, people are looking at jewellery using less gold and more diamonds. This trend is a side effect of high gold prices influencing consumer choice," said Vikram Merchant, manager, diamond sales and marketing at the India representative office of global miner Rio Tinto.

Demand for diamonds is seen outstripping supply in coming years leading to an across-the-board appreciation in diamond prices and easy resale options in specific category of diamonds, industry players said.

"What is already happening is that people are viewing large stones, one carat plus, and special diamonds like fancy colours, for instance our rare pink diamonds, being considered as valuable investment options," Rio Tinto's Merchant said.

"With long term demand projected to outgrow supply there is strong price growth potential," Merchant added.

"The return value on diamonds has been steadily rising. Diamonds are getting certified by third party labs which is a guarantee for the customer that diamond can be traded as a commodity and it shows the value to it," said Prasad Kapre, co-chairman, gem and jewellery, at the Federation of Indian Chambers of Commerce and Industry.

Top Indian jewellery firms say volatile gold prices have resulted in flat volume growth for gold products and has aided a shift towards higher margin diamond products.