Are diamonds the new gold for individual investors?

"Diamonds are a girl`s best friend." From Carol Channing to Marilyn Monroe to "Moulin Rouge" the iconic song has endured as a symbol of wealth for more than half a century.

But should diamonds be an investor`s new BFF?

Of course, investors and couples alike can buy diamond earrings on the retail market, but there`s a movement to create a way for individual investors to buy diamonds like gold.The Securities and Exchange Commission is looking over a proposal for the first-ever diamond-backed exchange-traded fund.

Tom Lydon, president of Global Trends Investments and editor of ETF Trends, thinks there would be a demand for a diamond ETF, but the problem will be pricing. "When you look at these ETF providers trying to get into the space to a degree it`s the tail wagging the dog. They`re trying to force the industry to have standardized pricing" he said.

The diamond industry likes "the fact that pricing is not always clear. That`s basically how they make their money," Lydon told CNBC`s Street Signs."Gold is liquid. It trades on the futures market. But when you get to diamonds it`s a whole different story. Diamonds aren`t created equal. There are so many sizes, shapes, qualities," he said.

A report in The New York Times explains how the diamond ETF would work.It would buy one-carat diamond earrings and store them in a vault in Antwerp, Belgium, providing daily values with an as-yet-unnamed index. The fund is backed by a New York company, IndexIQ, that has brought 14 other exchange-traded funds to market in the last five years.

Wall Street waded into the diamond trade in the late 1970s and early 1980s, when inflation was exploding and investors were looking for hard assets. But when rates sank, so did the value of diamonds and the diamonds-as-an-investment proposition.

Citi analyst Oliver Chen, who covers the diamond industry, regards the proposed diamond ETF with caution. "Diamonds for end-use tend to be 98 percent consumer versus gold at 50%. So there could be a lot of volatility on those supply and demand characteristics.

"Within the context of the diamond market, De Beers and [Russia`s] Alrosa still have chunky market shares. On a combined basis that`s 60 percent. So it`s a relatively non-fragmented market, which is a unique characteristic in contrast to gold," Chen told CNBC.

And it may get even more non-fragmented.The Sunday Times in the UK reports that legendary investment group KKR wants to create the third-largest diamond company behind De Beers and Alrosa by combining the diamond operations of BHP Billiton and Rio Tinto.

Chen is, however, bullish on diamonds, projecting that prices will increase 6% annually for the next decade. He likes Toronto-based Harry Winston recommending it as a "buy" with a price target of USD 17 a share over the next 52 weeks.

Meanwhile, Harry Winston is looking to tap hedge funds, pensions, and other institutional investors by teaming up with a Swiss asset manager to create a USD 250 million fund to buy diamonds.According to Chen, the difference between this investment fund and the proposed IndexIQ diamond ETF is the Harry Winston vehicle will only be open to qualified investors, will be capped at USD 250 million and will be a closed-end fund.