Traditionally diamonds have been a terrible "investment" for small investors - usually restricted to just buying a mounted diamond engagement ring of dubious quality from a retail jeweller, all the while knowing that at best you're going to end up paying twice what the stone is worth, plus a small fortune for the setting. As a "real" investment diamonds were disadvantaged both by the mark-up charged by retailers for unmounted gems and by De Beers having a virtual monopoly until recently - marketing around 80% of gem quality diamonds and controlling the supply of gems in order to "support" prices. [The was an urban myth that De Beers had a large concrete slab poured to "lock away" a huge amount of gemstones to keep them off the market...]
However, although De Beers still mines around 40% of the world's rough diamonds, and is by far the largest seller of gem-quality diamonds, it was allegedly "decartelised" in 1999-2000 when Ashton Mining (owner of the huge Argyle Diamond mine in Western Australia) decided to start market its own diamonds. Unfortunately, Argyle's diamonds are mainly of industrial grade, so even today the competition with De Beer's is rather limited.
Since 2000 De Beer's excess stock of diamond gemstones has slowly been released into the market, which has depressed prices somewhat at the lower end (smaller stones), as can be seen in the International Diamond Exchange IDEX index below:
As the De Beer's stockpile slowly unwinds, is it now time to look again at diamonds as another alternative investment, similar to gold and silver? A few things make me think not (yet):
1. I'm not sure what fraction of De Beer's huge store of diamond gemstones has actually been sold off - there could still be a huge, unknown oversupply.
2. The trading of individual stones is problematic due to each stone being individually valued based on the "4Cs" (colour, clarity, cut and carats) with the evaluation of these being more art than science. The same stone can get slightly different appraisals from the various certified diamond valuers.
3. Trading the IDEX index would be an option (excuse the pun) to overcome this, but I don't think this index is actually traded anywhere - it's used mainly for diamond merchants to monitor changes in the market for physical diamond gemstone trades.
4. Artificial diamonds may reduce the demand for natural gems in the future.
5. They're still huge, relatively untapped diamond fields off-shore along the coast of africa, and new fields may be discovered such as the ones fairly recently developed in North Australia and Canada.
6. Diamond gemstones are not "consumed" (apart from some loss when they are recut into more fashionable shapes), so each year production is adding to the total "pool" of available gems. At the same time the population in the developed world is aging, and birth rates in the rapidly developing countries trending down, so demand may diminish over time.