Diamond as an investment

[kmasciarelli]

One of my purposes for buying a bigger diamond is to pass it on to my daughter and grandaughter in the future with the thought that if they ever ran into financial difficulties, they could sell it. From what I am reading, to purchase is easy but to sell it, may be very difficult. Any thoughts??If you pay 10-15,000 wouldn''t the price go up and be worth more or at least the same???

 

[Smooth]

Do not buy a diamond as a financial investment. If you try to sell a "used" diamond, you will be lucky to get half of what you paid for it unless it is something truly rare and special.

There are many reasons for this, not the least of which is that DeBeers' marketing and monopolistic practices have, over time, led most people to believe diamonds are more scarce than they really are.

Diamonds have become a tradition and they are to be enjoyed for their beauty.
For investment purposes, definitely look elsewhere.

 

[Richard Sherwood]

Hi K. There was an excellent thread with extended participation regarding this subject.

It was entitled "Investment", and can be located at:

https://www.pricescope.com/community/threads/investment.4346/

 

[fire&ice]

Yep, Rich, bring back the classics!

BTW, K.W. - are you rationalizing? Do read that thread. It's a very good read.

 

[Mara]

It is very hard to sell a stone, unless you get something that is so rare that it does actually keep most of it's worth over the years. But say you get a very nice good cut 1.75-2c G VS2 for $15k. That is going to be such a common stone in the future (and is now) that any jeweler would not really be so inclined to give you what you paid for it (which is most likely his price plus markup), when he could get it for 1/2 that if not less through his own wholesaler. So if you don't have a D IF excellently cut stone or similar, chances are your stone will be hard to sell, and even if you do manage to sell it, you may not get what you think from it.

Investment stones are more along the lines of the excellent color, clarity and lately people have been collecting colored fancy stones as well, since those are considered more rare. So yes if there are only a handful of the type of stone you own, it will be worth something, but if its a typical diamond, there are tons of them out there, a dime a dozen, and it worth more as an emotional investment and something to be passed on down the line for your daughters and their children to wear proudly, but not as a tool for financial help.

Best of luck!

 

[Richard Sherwood]

I'm sorry, but I can't keep quiet. I happen to fall in the "other" camp, that considers a diamond one of the best luxury item commodities you can buy.

The truth is, they are not a dime-a-dozen, by any stretch of the imagination. They are expensive little suckers, and have been for over a thousand years.

The closer you can buy a diamond to wholesale (the price a jeweler has to pay for it), the better an investment it is.

Take the following scenario as an example- You buy a $10,000 wholesale diamond for $11,500, at a 15% markup (fairly common over the internet, sometimes less, sometimes more).

The wholesale value of diamonds typically appreciate (on the average) at about 5% a year. I researched this once from 1948 to present day, and 5% is actually being slightly conservative. That means the wholesale value on your diamond will appreciate along the following lines:

1 year ownership- $10,500 wholesale value
2 year ownership- $11,025 wholesale value
3 year ownership- $11,575 wholesale value

So you see that in three short years the wholesale value of your diamond has appreciated to the level at which you purchased it (if you bought it at a 15% markup).

Now let's carry it out to ten years ownership:

10 years ownership- $16,300 wholesale value

So in 10 years, you see a 41.7% increase of $4800 on the $11,500 you originally invested. On top of that, you have had the pleasure of wearing and enjoying that diamond for ten years.

Now here's the crucial point of realizing the return on your investment. YOU HAVE TO SELL IT PROPERLY IN ORDER TO REALIZE THE GREATEST RETURN ON YOUR INVESTMENT. If you just take it and "cash it out" with a jeweler, estate dealer or pawn broker, you're going to take a bath. THAT IS THE WRONG WAY TO SELL A DIAMOND. It is the no-brainer way that many people have taken which has caused the general opinion that diamonds are a lousy investment.

Okay, let's say your diamond is worth $16,300 wholesale, ten years later. Remember, internet sales of that diamond are probably going to be anywhere from 5 to 25% profit (let's stick with the average of 15%). Independent "bricks and mortar" jewelers are probably going to be selling that diamond for 15 to 40% profit (let's figure an average of 25%). High end jewelers and mall stores are probably going to be selling that diamond for 30 to 80% profit (let's figure an average of 50%).

How does that break down?:

$24,450 approximate retail from a high end jeweler or mall store
$20,375 approximate retail from a independent "bricks & mortar" jeweler
$18,750 approximate retail from an internet vendor.

So, a private individual wanting to buy a diamond through the traditional channels is facing these three market level tiers as his choices...

But here you come along, offering your diamond for private sale. What do you do to make it attractive? You get a professional appraisal chronicling the authenticity of your diamond and it's retail value. You could even document these three tiers above if you wanted.

THEN YOU UNDERPRICE THESE LEVELS! Let's say you price it at $17,500. You're undercutting the lowest market level tier by $1,250, while still getting $1,200 over the wholesale value. Or heck, let's say you give them a deal and sell it for wholesale ($16,300). They'll be saving $2,450, and you'll be realizing that 41.7% increase of $4,800 on your original investment.

Tell me what other LUXURY (I stress the word LUXURY) commodity investment you can do that with?! A car? A boat? A stereo system? No.....the only thing that does as well is art and antiques, which usually aren't quite as liquid as a diamond.

Tell me how many people you know that wouldn't jump at the chance to save $2,450 (or much more) on a diamond of the size and quality they'd been considering purchasing through a traditional vendor or store?

Now, just for the sake of argument, let's say you take one of several "no brainer" routes in reselling your diamond. Since I was an estate dealer for 19 years, I feel qualified in estimating what you would get from each of these routes. Here are the approximate figures:

Your net when letting a jeweler sell it for you on consignment, with him realizing his normal retail profit over this normal wholesale cost:
$16,300

Your net when having an auction house sell it for you, with a stipulated reserve on your part and the auction house realizing 7.5 to 10% commission from you and the buyer:
$14,000 to $16,000

Your net when selling through a competitive auction house like E-Bay:
$12,000 to $15,000

Your net when selling to a jeweler or estate dealer at an "instant cash value":
$8,000 to $10,000

Your net when selling to a pawn shop:
$5,000 to $7,500

Do you see the pattern? The more time, energy and strategic merchandising you invest in selling your commodity, the greater the return you will realize. The way to realize the greatest return is to sell to the same market the dealers do- THE PUBLIC! If not that, at least let an experienced professional have the opportunity to sell the diamond for you, making money for both you and him or her.

I can't begin to tell you the number of diamonds I moved for private individuals who realized a profit on their initial investment. I helped grandmothers put their grandkids through college, parents pay for their child's operation, husband's pay their business debts, couples take vacations, families buy a new car, etc, etc, etc.

Should you buy a diamond strictly for investment? No, not unless you're in the business or are one shrewd operator. Should you be able to count on a diamond to have, as Fire & Ice refers to it, "staying power"?

Yes. Most definitely.

 

[Mara]

Rich--definitely some great points. I guess only time will really tell. I do think that's too high of an estimate for a sale on eBay..it's very competitive and many people sell stones on there at very very discounted amounts, not many people feel comfortable with dropping that kind of $$ with an unknown person. But in 10/15 years who really knows..who really knows ANYTHING about the future for that matter.

I do still however think that diamonds are very commonplace. Sure, not the better colored, better cut etc stones, but the local maul jewelers sell tons of them at $1999 for a carat or $995 for 1/2 carat. Almost anyone can own a diamond, regardless of the perception of quality...so in that respect I think the more rare the stone, the better the 'investment' quality. But something a typical stone...typical color, cut, quality--you'd have to lowball the sale alot even with a 5% averaged annual markup to realize any sort of real gain. If people DO find the right venue to move the stone, sure...but I think many people do not understand how to go about it.

Interesting to note also that I found an old Bailey, Banks and Biddle catalog from 1990 amidst some old items in the garage this weekend. They have a bunch of diamond rings in there, solitaires etc. I suppose they are all different quality because the pricing had huge ranges, but I had to laugh when I saw some of the prices.

If you bought a stone from them, chances are even now, 13 years later, you still got ripped off. They had a 2.12c round solitaire stone in plat for $50k. It must be something like a D VVS to be so pricey, but the catalog doesn't note. They had a 1/2 solitaire round for $1495. They had a 1c solitaire for $10k. They all looked white in the picture, no visible inclusions but then again it's a catalog, so I assumed the 2.12 had to be something like a D VVS, the 1/2c maybe H SI1 or similar. Who knows about the 1c for $10k. Of course these are b&m prices with markups, but many typical people shop there. They're a mall jeweler..though one of the better ones from the items I have seen in their store and their level of service.

So in today's world, a 2.12c round solitaire for $50k? Hah. Unless it's D VVS but even then you can get a 2.10 D VVS2 ACA superideal for $41k. And a 1/2c solitaire round of something like H SI1? Maybe $1100 online. What about a 1c ACA type superideal stone of E VVs or similar? About $8k. So still ....people who bought these stones from BBB in 1990 and about 13 years later, their stones are still worth around the SAME than when they bought them (if not slightly less due to possibly the hit that B&M's have taken because of the internet). Not a great investment at all. But then they didn't shop a wholesaler. Maybe that's the key.

This is not investigative research nor have I really sat down and crunched the numbers, but in scanning the booklet today, my fiance even said...wow those prices are outrageous by today's standards! From 1990. A maul jeweler.

Just some food for thought...

 

[kmasciarelli]

Thanks Rich! Your advice is very helpful. Wanted to know how to go about selling if ever necessary and get the most profit, and you were extremely knowledgeable. Plan on buying it for my pleasure but wanted to know if it could at least sell for what I pay for it-I am armed with wholesale prices-you said they up the price 15%?

 

[mdx]

Richard you’re thoughts on diamonds as an investment are pretty astute.

Let me add a few thoughts to the topic.

If a widget increases in value say 20% in 5years is this good investment or is it inflation. In other words if I cannot replace the widget for below my selling price it must be inflation not an investment

Therefore the only true investment is a situation where we trade a commodity, Perhaps that’s why we invest in stocks and bonds. We trust the corporation’s management to make a profit and share with us profits and capital growth.

If we accept this concept then Richards model indicates that diamonds can in fact be an investment as it envisages a buy sell arrangement.
Lets throw into the pot the fact that De Beers control on rough diamonds means a small but steady increase in value as they are hardly likely to allow there INVESTMENT to depreciate. I think if we analyses the average increase in the price of rough diamonds it would be close to the average rate of inflation.
Diamonds are reasonably unique in that they don’t get old or deteriorate in quality.

So if we accept Richards model, what should we consider as an investment diamond.

I would choose a 0.75ct to 1ct H S1 fine cut, Why? Because they are easy to sell.

Any other thoughts?

Wayne

 

[Richard Sherwood]

Good points Mara.

High markup low quality diamonds are not going to fit in the model I presented. I assumed a decent quality at a low markup, which is what PriceScope vendors are usually after.

High markup high quality diamonds (such as you might find at Bailey Banks & Biddle) would still fit in the model I presented, but would start out in the handicapped position of having been purchased far over wholesale (such as the "up to 80%" markup I mentioned. In 1990, that could have been "up to 100%, but nowadays you don't usually see that kind of markup anymore).

So let's use your BBB example of $50K in 1990. Let's say it was priced at a 100% markup, with an original wholesale of $25,000. Thirteen years later at an average increase of 5%:

$47,150

Again, this was a poor example of what I'm talking of, but it still illustrates the "staying power" we mentioned before. At least the buyer of even a high markup fine quality stone will receive SOMETHING after 10, 20, or 30 years. That's better than most LUXURY commdities you could have purchased.

As far as EBAY was concerned, the price level I mentioned was 8% to 26% less than wholesale. I feel that is a fair representation for fine quality diamonds, not the junk. The junk is a whole different story. That stuff you have to give away in order to sell.

At about 35% below wholesale you start having the dealers kicking in and purchasing. Estate dealers will usually purchase a fine diamond from 35% to 50% less than wholesale, depending on the liquidity of the diamond. If you're selling a fine stone on E-Bay, you would want to get more than these values, because you could get them anyday by walking into your local neighborhood estate dealer.

 

[Smooth]

mdx, you're correct. We have to take inflation into account. Here is a chart of inflation over a 50-year period: http://www.forecasts.org/info/inflation.htm.

Diamond prices have remained high over time due to control of the supply chain. However, even if we assume that you buy a diamond at rock-bottom prices and they will always appreciate at a constant rate of 5%, that does not mean they are a good investment. Prices and interest rates could fluctuate, making a 5% increase seem laughable. Heck, who knows if DeBeers' house of cards will one day collapse altogether. I would not make a comparison to gold because the world gold market is not controlled by a single entity.

Will diamonds hold at least some of their value better than most goods such as a TV, a car, a computer, etc.? Almost certainly, and I wholly agree with Richard on that point. In that regard they are tough to beat.

Are they a better "investment" than, say, real estate or mutual funds? No.
However, your mutual fund portfolio won't sparkle very much when you wrap it around your finger, in my experience.

 

[fire&ice]

I've had my ring for nearly a year to the day. Even if I had to take a 30% loss on the stone, I would consider this to be rent. I have had *that* much enjoyment out of this sucker! All that said, my ring has a chain of command (so to speak) with lineage to whom the diamond goes to. In my will, I mention that I would like for the ring to be kept in the family for generations. That is my *wish*; but, if a family member *needs* the money, then they may sell. Diamonds aren't like a luxury car. They can be around for centuries. I have even named my stone ("Blingy").

Wayne, perhaps Australia is different. I could be wrong, but,I have been told by many estate jeweler's that the bigger (2-3c) stones are the ones that sell better. Even in tough times, monied people will always have money. My guess is that a visually pretty 2-3c stone, near colorless (GHI)SI1 w/ a very good make is a safe bet *if* bought correctly.

My perpective. I can afford to loose money on the diamond if tradition of centuries changes in my lifetime. Is it a possibility? Perhaps. Is it probable? IMHO, no.

Also, could diamonds be like land and/or water. Tons of it. But, how much is drinkable/inhabitable (gem grade)/able to get access to?

Diamonds as an investment in the true sense - no. But, will it hold it's value while you enjoy it? Most likely & it will have the staying power that most luxury goods will not.

Buy right. Sell right.

 

[fire&ice]

----------------
On 8/4/2003 9:31:33 AM Smooth wrote:

Are they a better "investment" than, say, real estate or mutual funds? No.
However, your mutual fund portfolio won't sparkle very much when you wrap it around your finger, in my experience.

----------------

Not with the way some of hubby's mutual funds went over the past couple of years!

That said, I concur.

 

[glitterata]

Besides accounting for inflation, you should also subtract a percent or two from the appreciation to account for insurance.

Do diamonds go up more quickly in times of high inflation? Or do they keep or drop their value relative to the currency?

 

[kmasciarelli]

Thanks you for the info. I am looking at a 2.25 ct diamond. Think I want oval- was told oval i should go with f color, si2, very good cut or a round H,I color si 2 would be fine. Any thoughts

 

[fire&ice]

Personally, nothing sparkles more than a RB. Also, in that color range, consider getting a stone w/ med/strong blue fluor.

 

[kmasciarelli]

Rb-Round Brillant?

 

[Mara]

So Rich, it sounds like what you are saying is the following factors would need to be all present for a real profit to occur from the sale of an investment store.

1) Purchase from a vendor with under a 15% markup over wholesale.
2) Purchase a high quality stone, equalling excellent cut, color, clarity as opposed to a 'typical' stone (ex being something like E VVS2 and typical being something F SI1 or G VS) OR is this not the case? MDX doesn't agree. What is best to err on the side of...'easy for a jeweler to sell' or 'harder to find'. I would think harder to find holds it's value better...as easy for a jeweler to sell means he can also get it from his wholesaler for much less than he would pay the private owner?
3) Wear in good health
4) Re-sell through proper channels in order to get the best return on your investment

Sound about right?

 

[Richard Sherwood]

I'll fine tune it for you a bit Mara.

1) I used 15% as an average figure to work from, but the consumer would have to decide ultimately how much they are willing to pay. There are plenty of times I have paid more than "average" for a certain item that I really wanted which was hard to find.

As a rule though, the closer you can buy to wholesale the less time it will take your diamond to appreciate past the markup you paid for it.

2) I always advise purchasing what I call "no problem" stones. That translates into stones which have no easily visible body color to the eye, no inclusions visible to the eye, and a cut which is beautiful to the eye.

For me, that translates to diamonds which range from I/SI1/2B and up.

Very high quality diamonds are actually a little tougher to sell than mid-range (GHI/SI-VS) quality stones, so Wayne's assessment definitely makes sense. But you and F&I have a good point about larger, higher quality stones appealing to the market which usually is never out of money.

3) Absolutely (wear it in good health).

4) Absolutely (sell it through the proper channels).

 

[Richard Sherwood]

Hiya Smooth.

-----------
Prices and interest rates could fluctuate, making a
5% increase seem laughable.
----------

Perhaps, if you compare it to high risk, high return investments. But how does 5% increase look compared to your average bank CD, or government bond?

-----------
Heck, who knows if DeBeers' house of cards will one
day collapse altogether.
----------

Two things in regards to this comment. One, DeBeers is a latecomer in the diamond game. They've only been around less than a hundred years. Contrast this to the millenium long reign of diamonds as one of the most valuable of gemstones, bought, sold and traded for over a thousand years.

Two, many people don't realize that diamonds are just one aspect of DeBeers economic health. DeBeers also has huge investments in metals mining, real estate, and all the other investments that a financial giant has access to. Some of the greatest financial minds in the world are strategically handling DeBeer's varied financial investments. It's far from a "house of cards".

If DeBeers collapsed, it would be in the midst of a worldwide economic collapse. In the aftermath of such a collapse, what commodities are people going to look towards for buying, selling and trading. Stocks and bonds?

Hardly. Hard assets will be where it's at.

 

[Mara]

----------------
On 8/4/2003 5:35

3 PM Richard Sherwood wrote:

If DeBeers collapsed, it would be in the midst of a worldwide economic collapse. In the aftermath of such a collapse, what commodities are people going to look towards for buying, selling and trading. Stocks and bonds?

Hardly. Hard assets will be where it's at.
----------------

Speak directly into the recorder, Rich...I need to replay this one for my better half.

'See honey, I NEED more diamonds...they will save us from economic ruin one day!'

 

[Richard Sherwood]

Heh heh heh...

You can look throughout history for examples of hard assets carrying people through tough economic times.

The era and aftermath of Nazi Germany is a good example. The nation was in ruin, currency worthless. Of particular note were the European Jews who escaped Hitlers regime, with diamonds sewn into their clothing.

Those diamonds started a new life for them in the countries they migrated to...

Diamonds are the most concentrated form of wealth none to mankind, with the exception of plutonium. The concept of their wealth is deeply ingrained in the human psyche, after a 1000 years exposure to them as rare and valuable gems. They are easily transported and instantly recognizable the world over, with willing buyers in every civilized (and many uncivilized) countries.

Heck, look at even those lab created diamonds I posted on a while back. They're SYNTHETICS and they're expensive!

 

[mike04456]

----------------
On 8/4/2003 5:35

3 PM Richard Sherwood wrote:
Two, many people don't realize that diamonds are just one aspect of DeBeers economic health. DeBeers also has huge investments in metals mining, real estate, and all the other investments that a financial giant has access to. Some of the greatest financial minds in the world are strategically handling DeBeer's varied financial investments. It's far from a "house of cards".

If DeBeers collapsed, it would be in the midst of a worldwide economic collapse.

----------------

Ditto on this. De Beers is hardly a "house of cards." It is an enormous multinational corporation with vast hard assets. It has been so successful because it has been run by some very sharp characters, starting with Cecil Rhodes and Ernest Oppenheimer back in the beginning. The people who run De Beers nowadays are no dummies, and they know what they're doing. The Supplier of Choice program, despite the chaos it has engendered, is a good example of how they have always run things for the long term: they knew they could no longer control 90% of the world's diamonds and have instead shifted gears. They are still the biggest kid on the block and there is no reason to suspect that will change even though there are more diamonds coming out of the ground now than ever before. If the diamond market were in danger of collapse, you would see people getting out of it, but this is hardly the case--in the last decade several new mining companies have gotten into the business to exploit new deposits in Canada and elsewhere.

These perennial "what could happen if De Beers ever lost their grip on the market?" discussions are little more than pie-in-the-sky fantasizing.

 

[fire&ice]

----------------
On 8/4/2003 5:22:46 PM Richard Sherwood wrote:


2) I always advise purchasing what I call "no problem" stones. That translates into stones which have no easily visible body color to the eye, no inclusions visible to the eye, and a cut which is beautiful to the eye.

For me, that translates to diamonds which range from I/SI1/2B and up.

----------------

Rich, you are spot on. As one who buys & sells in a subjective "limited" supply market, this is key. To often, one doesn't understand this nuaince (sp?). People want to buy something eye appealing w/ no visable problems. "Condition" is paramount. I call these items "no excuses" objects.

That said, you will always have a market for the D/IF 10c stone - albeit a limited one. But, one that will find you.

 

[mdx]

Here is an interesting article on the subject by:

By Brian Harmon de Clare, Executive Director, Global Head of Commodity Marketing Financial Markets, ABN AMRO.



Your margin lies in Futures - ABN AMRO 28/07/03



Over the last two years the world has seen equity values plummet and pension values linked to those equity markets fall dramatically. As a result, many pension funds, hedge funds and other investors have moved substantial amounts of capital into other asset classes where they perceive stronger, more stable returns.

Commodities have been one of the beneficiaries of such capital flight as they provide a non correlating performance to the equities as well as a heavily regulated (and thus) safe environment to invest.

Commodity products such as oil, gas, gold, copper, aluminium, coffee and grains have all attracted investor interest over the last two years. This investor interest has normally been in the form of either their purchasing ‘Futures Contracts’ or ‘Over the Counter’ (OTC) financially settled instruments. The investor will either invest in one or two commodities, where there is a belief those commodities will outperform others in the time period set, or they will invest in a number at once – called an ‘Indice’ or ‘Basket’.

These commodities have benefited by many Billions of Dollars as equities have been under pressure, so why do we not see funds of this magnitude being invested in Diamonds?

Anyone producing a product never likes to hear his business is ‘Commoditised’ this normally refers to a product or service having lost it’s margin when being sold. In other words, it is freely tradable and can be replaced by other similar products or brands in the market place.

Producers of most commodities have become all too familiar with the ‘commoditisation’ of their industry and have learnt to deal with this by providing a quality of service that others find hard to replicate and, thus, ‘decommoditise’ their commodity.

An example is the energy industry. How many times does one look at the actual gas when filling up at the gas station ? The gas delivered into the car could be anyone’s gas, the point is that one drives into a gas station that has familiarity and we trust.

Branding here is the key. The service and reliability one expects from the owner of the brand is the prime attraction for many drivers, not necessarily the sight or feel of the product itself.

A commodity therefore is not necessarily devalued. It is just that the margins in SOME aspects of the production, distribution and marketing have come under pressure. Basically, you cannot make money necessarily out of just purely trading that commodity. You then have to find ways of adding value to it by distinguishing your product from the others.

For polished diamonds no debate should really be needed on whether it is a commodity. Then a playing field becomes available that should get the main participants all round, from polished producers, distributors, retailers and investors excited. There are a lot of entities in the world that would benefit from being able to trade in diamonds.

The challenge is to provide this without losing value.

The added value in the diamond industry is polishing, selling downstream and, particularly, marketing. The introduction of Futures or Over the Counter (OTC) contracts in financial instruments could, in itself, be the ‘added value’ the industry is seeking. The ability to allow those producers, polishers, merchants, marketers and retailers to enter into hedging instruments would finally bring the diamond industry alongside it’s peer group in mining – gold, silver and other precious metals.

This would allows clients to remove uncertainty in the diamond price by providing a medium to deal in a forward market, which will remove much of the uncertainty of price movement.

Polished demand stood at $13.3 billion in 2002. It is expected to rise by about 40% over the next 5 years and 75-100% in the next ten years, depending what happens to the dollar and other factors such as inflation. Apart from the US, the largest consumer market, India, followed by China, are huge emerging consumer markets and all are familiar with the Futures and OTC markets.

Basically, what dealers trade in a forward market, they agree to deliver commodities, or financially settle, at a fixed price at a specified date in the future. If a polished trader thinks prices are rising in a certain category, he could ideally enter into an OTC contract which would establish a price now for the delivery, say, 90 days later.

At contract delivery time, the price of the futures contract and the cash price should cancel each other out. Normally in futures trading, the seller of a contract (‘short’) will notify the exchange, or his buyer (the ‘long’), of his intention to deliver as the delivery period draws near. Buyers and sellers of futures contracts can also exchange an expiring contract for a new one at a date once more in the future, (which is what most players in the futures market actually do), rather than take delivery.

The question is whether you agree to deliver diamonds (delivery contracts) or whether you trade financial instruments with diamonds as your underlying.

In the case of polished, you have an independent, transparent price index based on actual trade trades that covers a wide range of actual prices. Within the range of diamonds traded, there will be a diamond size, colour and clarity which will emerge as the main ‘benchmark’. That becomes a focal point.

That benchmark becomes the principal index to govern the whole spectrum of prices. As the hub moves up and down it is very important to understand how the prices of other sizes, clarities and colours move up and down, this is referred to as the ‘basis’ risk. The purpose of setting a benchmark is so that the industry does not have to monitor too many indices, by having too many indices to trade one might see illiquidity develop in many of the not so used benchmarks

If the diamond industry can create transparency and trust in this manner then liquidity in diamond pricing will follow.

Such liquidity would allow a properly regulated Futures exchange to possibly register diamonds, allowing an accepted independent index to be created globally.

Such a regulated product would then act as a magnet for the stream of investors around the world seeking to invest their funds in commodities.

As for polished diamonds, there is little doubt that Futures trading would ADD value to the business and not DEVALUE.

Wayne
Melbourne Diamond Exchange Ltd.

 

[Richard Sherwood]

Fascinating...

 

[mike04456]

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On 8/5/2003 5:44:12 AM mdx wrote:
Polished demand stood at $13.3 billion in 2002. It is expected to rise by about 40% over the next 5 years and 75-100% in the next ten years, depending what happens to the dollar and other factors such as inflation. Apart from the US, the largest consumer market, India, followed by China, are huge emerging consumer markets

----------------

It's reasons like this why De Beers has little to worry about and the world diamond market is in no danger of collapse.