Anyone admiring the works of Theo Fennell and Laurence Graff at this month's Coutts London Jewellery Week could be forgiven for wondering whether a beautifully designed diamond ring might also make a good investment. With stock markets in turmoil and property prices drifting downwards, savvy investors have been looking for alternative homes for their cash and, with the prices of commodities soaring, diamonds and precious metals have been looking attractive in more ways than one.

But, while diamonds may indeed be a girl's best friend, as an investment, they work best outside of the traditional engagement ring setting. The same goes for gold: while the precious metal has proved an excellent investment over the past few years, investors are better off buying bullion or Kruggerrands than they are buying rings and bracelets, which tend to be much more difficult to sell.

Gold

After a surge in gold prices in the late 1970s, gold fell out of fashion in the 1980s and early 1990s, with prices languishing between $300 and $400 a troy ounce, before falling below $300 in the late 1990s and early 2000s. However, since the bursting of the dot-com bubble and the terrorist attacks of 2001, gold – which has traditionally been seen as a store of value in turbulent times – came back into fashion. The gold price has risen by more than 160 per cent over the past five years and broke through the $1,000 mark this spring, reaching an all-time high of $1,011 on March 17 ^th . The price of gold has since slipped back but, with financial markets remaining turbulent, demand for the precious metal is likely to remain strong.

Gold can be bought in the form of bars or coins, which are available from gold dealers (see the World Gold Council website for more information) or, if you prefer not to buy the physical asset, you can purchase gold certificates instead.

"Investors are better off buying bullion or Kruggerrands than they are buying rings and bracelets, which tend to be much more difficult to sell."

Alternatively, you can profit from gold prices by investing in gold mining firms, either directly or through an investment fund. Note that the share prices of mining companies are likely to be more volatile than the price of gold itself, since share prices are influenced by a host of other factors, including supply and demand, stock market sentiment and the political and economic fortunes of gold-producing countries – many of which are in the developing world.

Another caveat is that gold has already enjoyed a long bull run, and some commentators question how much further prices can rise. However, there are reasons to suggest that gold's strong performance may persist: supplies from North America and Australia are falling while demand continues to rise; and the weakness of the US dollar coupled with uncertainty in the financial markets means that gold's appeal as a safe haven endures.

Commodities

The rise in the price of gold has been driven by increased demand for gold jewellery, mostly from India and China, but it has also been part of a more general surge in commodity prices. Both hard commodities, such as metals, and soft ones – which include anything from wheat and cotton to pork bellies – have enjoyed a spectacular bull run of late, again thanks in part to significant increases in demand from fast-growing developing economies.

According to ETF Securities, a firm which specialises in exchange traded commodities (ETCs), commodities were the top performing asset class in the first quarter of this year, rising by 9.4 per. Platinum, copper, aluminium, corn and natural gas were among the strongest performers, while livestock and lean hogs (also known as pork bellies) were among the poorer performers.

Investing in commodities has traditionally been tricky for the small investor, but over the past few years it has become easier to tap into the commodities boom. Coutts has issued a range of customised investments linked to commodities which private bankers can provide further details on if clients have an interest in investing.

"The arts and antiques market remains a viable investment option during this period of financial uncertainty." Christopher Ewbank, RICS.

The other way to gain exposure to commodities is through ETCs - listed funds which track the performance of a particular index. These can be bought and sold on the stock exchange in the same way that shares in a company can, and they track either an individual commodity's price or a commodities index.

Agricultural land

Another beneficiary of the boom in commodities prices – specifically the price of wheat – has been agricultural land. The value of UK agricultural land rose by around 25 per cent in 2007, and Carter Jonas, the property consultants, forecast that it will rise a further 10 to 15 per cent this year. The rising price of farmland is not due solely to increased commodities prices: demand from 'lifestyle buyers' – that is, people other than farmers – as well as from foreign investors has also helped push prices higher.

Art

A survey by the Royal Institution of Chartered Surveyors (RICS) in April showed that the arts and antiques markets are going strong, particularly those lots worth £5,000 or more. Fifty per cent more surveyors reported a rise than a fall in the performance of lots in the £5,000-plus band. "The arts and antiques market remains a viable investment option during this period of financial uncertainty," says Christopher Ewbank of RICS. "Many investors are using their disposable incomes to buy in at the high end with the hope that value will continue to stay firm while stocks and bonds ebb and flow."

Contemporary and modern art prices have risen significantly in recent years: the Hiscox

Art Market Research index shows that, in the year to June 2007, the value of contemporary art rose by 55 per cent, while modern art rose 44 per cent. However, it may be that the best of the boom times are over for now: although art is not correlated with the performance of stocks and bonds, it is correlated with the strength of the economy.

Investing in art is a highly specialist area – it is not an easy market for the amateur to tackle, not least because it is such a broad field. If you do want to buy some pieces, careful research is essential. You should purchase the very best pieces that you can afford: quality must be your primary concern if you are buying art as an investment. But at the end of the day – its also as important to like it. If you get 10 years of personal enjoyment from a piece, it will at least soften the blow if it is not as good an investment as first hoped.

By Paula Hawkins