Combine cold water, mustard seed and dry mustard in medium bowl. Cover. Let stand for about 3 hours until mixture thickens to a paste.
Combine next 10 ingredients in medium saucepan. Bring to a boil on medium high. Reduce heat to medium. Simmer, uncovered, for 10 to 15 minutes, stirring often, until reduced by half. Add to mustard mixture. Stir. Transfer to blender or food processor. Pulse with on/off motion until mustard is slightly thickened but grains are still visible. Pour into small heavy saucepan or top of double boiler. Heat on medium low or over simmering water for 10 to 15 minutes, stirring occasionally, until thickened. Remove from heat.
Add honey. Stir well. Cool. Transfer to small bowl. Cover. Chill for 3 days. Spoon into sterile jar with tight fitting lid. Store in refrigerator for up to 2 year. Makes about 1 cup.