Gold (GC-FT1,530.800.200.01%) has had a decent run this year, up about 6 per cent in the first half. But it has been completely outshone by the increase in diamond prices, which surged almost five times as fast, according to Bloomberg data.

To help investors bet on future increases, there will soon be three new funds that hold a portfolio of precious stones. Harry Winston Diamond Corp. (HW-T16.33-0.12-0.73%) is setting up a $250-million diamond fund for institutional investors. Two London-based funds, Diamond Capital Ltd. and Fusion Alternatives, also plan to offer polished-gem portfolios this year, Bloomberg says.

But the path could be, well, rocky. London-based Diamond Circle Capital Plc, the first publicly listed fund to invest in the gems, has plunged 54 per cent since selling shares in 2008, Bloomberg points out.

The Diamond Capital fund aims to trade as well as hold stones. It will lend gems from its inventory to jewellery retailers and allow them to sell the stones on its behalf at a profit.

Still, be warned: Polished diamonds lack fully transparent price data and liquidity. They tend to attract investors who are betting on excess demand and, unlike gold, diamonds aren't usually seen as a hedge against inflation.

Last year polished gem prices advanced 17 per cent, while gold gained 30 per cent.

Harry Winston's stock is up 42 per cent this year -- but the three-year and five-year returns are under water, -16 per cent and -15 per cent, respectively.

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