Commentary: Anglo buy shows diamonds are forever

UNTIL recently, diamonds were far-out-of-reach objects for most of the world - symbols of unattainable wealth. The rise of the new rich in the Far East and elsewhere has changed that a little, providing new customers for the most opulent offerings.

The market in luxury goods and precious metals has been immune to the economic slump.

There's also the trend to own precious stones and metals for reasons other than mere show. With paper wealth eroded, many are reassured that buying solid objects is a way to protect their riches. Anglo American is betting this will continue. "Demand is expected to outstrip supply" chief executive Cynthia Carroll said as she unveiled her $5.1 billion (£3.2 billion) deal to buy De Beers. The diamond firm has been owned by the Oppenheimer family since 1927 when control was seized from Cecil Rhodes by Ernest, ironically one of the founders of Anglo American.

It's not solely an emerging markets story of course - America still accounts for 40% of diamond sales. But the stones are increasingly popular in China.

Anglo reckons that more than half of the brides in Beijing and Shanghai now get a diamond engagement ring.

So if the market is ripe to expand and prices will only rise, why did the Oppenheimers sell?

Dominic O'Kane at Liberum Capital explains: "We believe the overriding reasons are succession issues - De Beers' chairman Nicky Oppenheimer is 65 and there is no obvious family member coming through the ranks to take managerial control."

Analysts immediately started speculating that Anglo American will look to spin off De Beers in a flotation. Carroll insisted today that this was not under consideration. For now, anyway.