Diamonds have been a bad investment for a very long time. Ask anyone who invested in the sector over the past decade, and they will probably tell you they regret it.

But prospects for the sector are looking up, according to RBC Capital Markets analyst Des Kilalea.

He said that the outlook for diamond prices is “pretty good” as production is declining in the major diamond-producing regions, and demand from China is growing by leaps and bounds.

“Investors are still risk-averse when it comes to diamonds, but they’re more interested than they were a year ago,” he said, adding that junior drilling plays are still of no interest to investors.

Rough diamond prices have bounced back strongly after collapsing during the market meltdown in 2008, and Mr. Kilalea said prices could rise 30% to 40% over the next five years.

“Hopefully people make some money this time,” he said.

A potential catalyst would be improved demand in the United States, which accounts for about 40% of world demand. While there is plenty of growth in China, it is less than 10% of the market, so Mr. Kilalea said it cannot pull the market along on its own the way it does with base metals.

Peter Koven