Sean Brodrick takes a closer look at the demand for gold and diamonds in China and India. Mr. Brodrick examines China and India's marketplaces and the growth potential for both countries.

China's economy is in overdrive, on track to expand 11.3% this year. Through September, China had exported nearly $900 billion in goods. And that growth is pouring money into Chinese consumers' pockets:

• China's per-capita gross domestic product has doubled in just three years.
• The real growth is in the "new money" category. The number of Chinese with at least $1 million in assets hit 345,000 in 2006, up about 8% from a year earlier according to Merrill Lynch.
• At the same time, total assets owned by Chinese millionaires reached $1.7 trillion, increasing 8.8% year over year.

In India, it's more of the same. The country is the world's fastest-growing major economy after China, with GDP rising at a rate of 9.4% in fiscal 2007.

• And look what's happening with India's citizens:
• India's middle class now numbers more than 300 million people. That's roughly the entire population of the United States.
• India had 83,000 millionaires in 2006, and the number of millionaires is growing 19.3% each year.

And both India and China have a huge appetite for gold. Global gold demand rose 30% in the third quarter of 2007 to a new record of $20.7 billion, according to the World Gold Council. And that was despite a 13% drop in sales in the U.S. Last year, the two countries consumed 721.9 tonnes and 259.6 tonnes of gold for jewelry and investment, respectively.

This year in China, gold jewelry demand increased 24% in the third quarter. Investment demand rose 46%. In India, demand rose another 5.5%, and investment demand was up, too. Plus, research firm GFMS Ltd. says gold jewelry demand in China may increase 20% this year, making it the second-biggest market, even ahead of the U.S.

Meanwhile, a diamond boom explodes overseas. Prices of quality diamonds have doubled during the past three years as new collectors from surging economies have entered the market. People in India have a long history of wearing expensive jewelry, but gold is the traditional choice. These days, diamonds are becoming more and more popular though.

According to reports, diamond jewelry sales surpassed that of gold during India's Dhanteras festival, which is devoted to light and wealth. According to industry calculations, sales of diamond jewelry in India could surge 70% to 80% this year alone.

"As for gold investments in China, not only is the country's consumption of gold growing by leaps and bounds, but its gold production is booming as well.
China is expected to produce a whopping 260 metric tonnes of gold this year, more than U.S. production (250 metric tonnes) and potentially more than gold's top dog producer South Africa, which is running into real trouble with its mining," Mr. Brodrick states.

About SEAN BRODRICK & MONEY AND MARKETS    

Sean Brodrick joined Weiss Research in 2000 as an analyst, bringing more than 25 years experience as a journalist and financial analyst to the position. He is Weiss Research's small-caps specialist, especially in natural resources, and is the editor of the company's Red-Hot Canadian Small-Caps, as well as a regular contributor to its daily e-letter, Money and Markets.