Diamonds are not only a girls best friend, they can also produce a rock solid return. De Beers, which controls 60% of the worlds diamond production, has increased its prices five times in the last 24 months, but worldwide demand is still rising at 8% a year. In China alone diamond sales are expanding at 25% a year. Nor is this growth limited to diamonds for jewellery. The vast majority of diamonds some 80% - are used for industrial purposes and, here again, prices have been rising as demand outstrips supply.

The lure of diamonds as an alternative investment is easy to understand. Over the long term they have always more than held their value; they are easy to transport and for those living in politically unstable regions of the world to hide; plus in countries with heavy death duties, they can be passed down from generation to generation without attracting the attention of the tax man. Unlike almost any other investment you can take pleasure from wearing them. Also they are relatively liquid: there are dealers willing to buy and sell diamonds for cash in every major city. Finally, if you know what you are doing, it is possible to make well above average profits.

However, before you rush out and sink your savings into sparklers a few words of warning: no one has ever made serious money from diamonds buying jewellery or loose stones at retail prices. Instead, you need to follow these golden rules:

- The better the quality of a diamond, the greater the chance you have of profit and the easier it will be to sell. Demand for small, less good diamonds will fluctuate according to the economy.

- Learn all about the 4Cs which is how diamonds are valued:

Cut. This refers to the symmetry and proportions of the stone. The best cut stones reflect light in such a way as to optimise the fire and brilliance of the diamond. Diamonds are usually cut with 58 facets and a Well Cut diamond will be classified as Ideal, Excellent, and Very Good. Dont touch any other type.

Colour. The best colour (unless you are buying coloured diamonds, of course, see below) is no colour at all! Diamonds are catagorised from D to Z with D representing the finest, colourless stones.

Clarity. Almost all diamonds incorporate tiny quite natural internal marks known as inclusions. They may also have external marks called blemishes. The less inclusions or blemishes the better the clarity. At the top end of the scale are flawless diamonds and there are over a dozen other classifications.

Carat weight. The larger the diamond, the more it weighs. Weight is measured in carats. The word carat originated from a tree called Ceratonia siliqua which produces seeds of a consistent uniformity. These seeds were used in olden times to measure the weight of diamonds. One carat equalled one seed! Now one carat is deemed to weigh 0.2 grams.

- You should only buy diamonds that have been certified by one of the recognised grading laboratories. The best known of these are the GIA (Gemological Institute of America) and the EGL (European Gem Laboratory). Your diamond dealer should show you the appropriate certificate and you should satisfy yourself that it is genuine.

- Consider buying individual diamonds, getting them set, and then selling them on eBay or your own website OR if you are good at setting up websites then do a deal with a diamond merchant where you sell diamond jewellery on your website that you dont even ownbuying from him or her only when you make a sale.

- Dont buy so-called blood diamonds. These have been mined in Sierra Leone by workers kept in unimaginably bad conditions and then smuggled out of the country. Not only is it unethical to buy such a diamond but in the long term it will be worth less. Ask for something called a Kimberley Process Certificate a sort of diamond passport that proves it has been mined ethically and legally.

- Watch for anything called clarity enhanced. This means that the diamond has been artificially enhanced. Bad news. Also, dont buy diamonds over the internet unless you know the dealer personally.

- If you believe diamond prices are likely to continue rising then consider buying shares in diamond producers such as Firestone Diamonds, River, Petra and Brazilian Diamonds.

- Subscribe to something called The Rapaport Diamond Report (www.diamonds.net) an up to the minute price guide. Once you understand how diamonds are priced you may be shocked to discover just how much mark-up jewellers make! Buying diamonds for investment you should expect to pay about 5% - 10% above the prices quoted in Rapaport. Bear in mind that if you buy your diamond in the EU it will be subject to VAT. If you buy it outside the EU and bring it home VAT will still be payable unless you smuggle it which you mustnt do as this would be breaking the law!

- Consider coloured or fancy diamonds. These are pure diamonds that by an accident of nature have turned out pink, blue, green, amber or even red. They are much, much rarer than clear diamonds and as such command a much higher price. The market for coloured diamonds has been growing as consumers begin to understand their scarcity value. Twenty years ago they cost less than clear diamonds. Now the best examples are the most expensive gemstones in the world.

- Research something called Tanzanite. It isnt a precious stone, nor does it count as semi-precious. Discovered in 1967 in the foothills of Mount Kilimanjaro the best stones are vivid violetish blue. Costing considerably less than diamonds the price is volatile but Tiffanys the jewellers use it a great deal and it could take off in the future much in the way coloured diamonds have over the last two decades.

One other possibility is to invest in a managed fund that includes diamonds and diamond mining shares in its portfolio. Examples would include Merryl Lynch Gold and General, Merryl Lynch World Mining and J P Morgan Natural Resources the latter has shown 50.6% growth in the year ending February 2006.

If you like the idea of making money from diamonds then there is no doubt the best strategy is to buy very high quality stones and dont sell until one of the periodic bull markets when prices can rise in leaps and bounds. This may, however, involve a bit of a wait. Thank heavens diamonds are forever.