Diamond prices soon to follow....

[diagem]

The following article is an interesting one worth reading...

http://www.idexonline.com/portal_FullEditorial.asp


Like I said many a times before...

It looks like prices on the high quality Diamonds is continuing its route up North!!!

This business is just starting to become even more interesting....


Good reading,

 

[strmrdr]

hording using other peoples money.
sounds like a dream come true for the industry and very bad for consumers.

 

[Dee*Jay]

Interesting article DiaGem.

I haven't fully analyzed the information yet, but as the Chief Compliance Officer of a hedge fund complex the two things that really lept out at me while I skimmed the article were liquidity and valuation. In my industry if you have something that can't be sold easily it's considered to have low (or no) liquidity and you have to haircut the price--sometimes quite a bit, and more and more as time goes on. On the valuation point, I just don't think there is (or has been) enough activity in the legitimate free market to be able to value these stone accurately. I mean, think about the stones that have sold at auction as an example. The potential emotional/setimental "value" associated with some of them due to their histories and previous owners has driven up the price to a level well beyond a reasonable legitimate value.

Oh, and the part about diversification (YELLOW as well as WHITE!!!) made me laugh out loud!

 

[diagem]

Date: 6/28/2007 4:43:15 PM
Author: strmrdr
hording using other peoples money.
sounds like a dream come true for the industry and very bad for consumers.

Strmrdr..., to early to know..., but I am not certain you are right on this one...

 

[diagem]

Date: 6/28/2007 4:45:37 PM
Author: Dee*Jay
Interesting article DiaGem.

I haven''t fully analyzed the information yet, but as the Chief Compliance Officer of a hedge fund complex the two things that really lept out at me while I skimmed the article were liquidity and valuation. In my industry if you have something that can''t be sold easily it''s considered to have low (or no) liquidity and you have to haircut the price--sometimes quite a bit, and more and more as time goes on. On the valuation point, I just don''t think there is (or has been) enough activity in the legitimate free market to be able to value these stone accurately. I mean, think about the stones that have sold at auction as an example. The potential emotional/setimental ''value'' associated with some of them due to their histories and previous owners has driven up the price to a level well beyond a reasonable legitimate value.

Oh, and the part about diversification (YELLOW as well as WHITE!!!) made me laugh out loud!

Dee*Jay,

Diamonds are very liquid..., especially when in strong hands...
Diamonds are one commodity that is still backed up as far as value appreciation..., now some would dissagree in categorizing Diamonds as a commodity.
If you compare the appreciation of Diamonds vs. other precious commodities... (in the past few years), great potential lies in the Diamond!

Provenance is a added value in Diamonds just as in any other art..., now let see if the two can combine.

 

[avlis]

i dont know about you guys... but if this statement holds true;

"Diamond Fund will only purchase individual diamonds valued at $1 million or greater"

I am not too concerned.. that isnt really the market im shopping in. what happens to those diamonds wont efect the smaller stones. now if they start buying up the 1 carat stones, then its a different issue.

 

[stook1]

Date: 6/28/2007 6:28:25 PM
Author: DiaGem

Date: 6/28/2007 4:45:37 PM
Author: Dee*Jay
Interesting article DiaGem.

I haven''t fully analyzed the information yet, but as the Chief Compliance Officer of a hedge fund complex the two things that really lept out at me while I skimmed the article were liquidity and valuation. In my industry if you have something that can''t be sold easily it''s considered to have low (or no) liquidity and you have to haircut the price--sometimes quite a bit, and more and more as time goes on. On the valuation point, I just don''t think there is (or has been) enough activity in the legitimate free market to be able to value these stone accurately. I mean, think about the stones that have sold at auction as an example. The potential emotional/setimental ''value'' associated with some of them due to their histories and previous owners has driven up the price to a level well beyond a reasonable legitimate value.

Oh, and the part about diversification (YELLOW as well as WHITE!!!) made me laugh out loud!

Dee*Jay,

Diamonds are very liquid..., especially when in strong hands...
Diamonds are one commodity that is still backed up as far as value appreciation..., now some would dissagree in categorizing Diamonds as a commodity.
If you compare the appreciation of Diamonds vs. other precious commodities... (in the past few years), great potential lies in the Diamond!

Provenance is a added value in Diamonds just as in any other art..., now let see if the two can combine.

I see no reason why diamonds could not be traded as a commodity. Provenance of a collectible stone is an entirely different matter. That is akin to saying that gold can''t be traded or properly values as a commodity because you wouldn''t be able to ascertain the value of pieces with historical value. These pieces would not be traded for their gold value (or in this case, stone value) since there are other factors driving the price.

I personally think diamond futures will add transparency to valuation in this market. Having said that, commodity markets require careful regulation to prevent trading abuses (as can be seen in this week''s congressional research/testimony into the Amaranth implosion that resulted in part from OTC trading in natural gas instruments that were beyond the reach of the CFTC).

 

[diagem]

Date: 6/28/2007 6:43:59 PM
Author: avlis
i dont know about you guys... but if this statement holds true;

''Diamond Fund will only purchase individual diamonds valued at $1 million or greater''

I am not too concerned.. that isnt really the market im shopping in. what happens to those diamonds wont efect the smaller stones. now if they start buying up the 1 carat stones, then its a different issue.

Correct..., but when it rains..., it rains on everyone!!!
If the prices of the ''rare Diamonds'' will move north..., naturaly these Diamonds will pull the rest with them eventually..., like I said before..., its to early to speculate at this stage!

But it will be interesting to follow!

 

[strmrdr]

Date: 6/28/2007 6:17:43 PM
Author: DiaGem

Date: 6/28/2007 4:43:15 PM
Author: strmrdr
hording using other peoples money.
sounds like a dream come true for the industry and very bad for consumers.

Strmrdr..., to early to know..., but I am not certain you are right on this one...

Anything that raises prices is bad for consumers.
400 stones being removed from a very limited market is going to do very bad things to that market.
The market is small enough that is a few dozen buyers or less decide not to buy at the higher prices the whole thing can callapse.
That would be the best thing to happen in my opinion.
The industry as a whole needs a kick in the pants and that might just do it.

 

[strmrdr]

Date: 6/28/2007 6:28:25 PM
Author: DiaGem

Diamonds are very liquid..., especially when in strong hands...
Diamonds are one commodity that is still backed up as far as value appreciation...

backed up with what?
artificial scarcity? marketing?

 

[diagem]

Date: 6/28/2007 7:31:51 PM
Author: strmrdr

Date: 6/28/2007 6:17:43 PM
Author: DiaGem

Date: 6/28/2007 4:43:15 PM
Author: strmrdr
hording using other peoples money.
sounds like a dream come true for the industry and very bad for consumers.

Strmrdr..., to early to know..., but I am not certain you are right on this one...

Anything that raises prices is bad for consumers.
400 stones being removed from a very limited market is going to do very bad things to that market.
The market is small enough that is a few dozen buyers or less decide not to buy at the higher prices the whole thing can callapse.
That would be the best thing to happen in my opinion.
The industry as a whole needs a kick in the pants and that might just do it.

Strmrdr, you are under-estimating this industry!!!
Once DeBeers is no longer custodian/in control..., Diamond prices will automaticaly adjust based on the powers of the market.

And this adjustment looks like prices will "jump" in the near future...

But I may be wrong on my thoughts...

 

[strmrdr]

Date: 6/28/2007 7:38:37 PM
Author: DiaGem
Strmrdr, you are under-estimating this industry!!!
Once DeBeers is no longer custodian/in control..., Diamond prices will automaticaly adjust based on the powers of the market.

And this adjustment looks like prices will ''jump'' in the near future...

But I may be wrong on my thoughts...

Ah yes De-Beers has less controll but no major players have yet broken ranks with them.
The good old boy network is holding it up.

Recently there has been a glut of 1ct diamonds on the market keeping prices soft on them. While .75ct range have been impossible to keep in stock.
Why? price points, the .75ct range has moved into the 2 year ago 1ct price point and the budgets aren''t expanding to match the price increases.
When does it stop? are people willing to pay today''s .75 prices for a .5ct in 2 years.. I dont think so.
Are the budgets going to expand,, not much in my opinion because wages are stagnant and living costs are getting higher.

 

[Dee*Jay]

Date: 6/28/2007 6:28:25 PM
Author: DiaGem

Date: 6/28/2007 4:45:37 PM

Author: Dee*Jay

Interesting article DiaGem.


I haven't fully analyzed the information yet, but as the Chief Compliance Officer of a hedge fund complex the two things that really lept out at me while I skimmed the article were liquidity and valuation. In my industry if you have something that can't be sold easily it's considered to have low (or no) liquidity and you have to haircut the price--sometimes quite a bit, and more and more as time goes on. On the valuation point, I just don't think there is (or has been) enough activity in the legitimate free market to be able to value these stone accurately. I mean, think about the stones that have sold at auction as an example. The potential emotional/setimental 'value' associated with some of them due to their histories and previous owners has driven up the price to a level well beyond a reasonable legitimate value.


Oh, and the part about diversification (YELLOW as well as WHITE!!!) made me laugh out loud!

Dee*Jay,


Diamonds are very liquid..., especially when in strong hands...

Diamonds are one commodity that is still backed up as far as value appreciation..., now some would dissagree in categorizing Diamonds as a commodity.

If you compare the appreciation of Diamonds vs. other precious commodities... (in the past few years), great potential lies in the Diamond!


Provenance is a added value in Diamonds just as in any other art..., now let see if the two can combine.

"Diamond Fund will only purchase individual diamonds valued at $1 million or greater"


That is the statement that raised the liquidty concern for me. There are simply a finite number (and I believe--although I have nothing to support this other than my gut feeling--a small number at that) of people/entities that can or will be active in the $1M+ diamond market.

But I do agree that diamonds in general (at smaller ct weights) are very liquid.

Now if only I could get my portoflio managers to buy diamonds instead of stock and bonds--I would take a much greater interest in the "holdings" of the portfolios, LOL.

 

[avlis]

the reaseon a hedge fund buying up diamonds will fail to drastically increase the cost is because diamonds are a luxury item with a finite ammount of cash to be spent on them. most people will spend a budgeted ammount of available money to make a diamond purchase. for example.. for most people, thier first large jewelry purchase they will make, and perhaps the largest they will make in thier entier lives, will be thier engagement ring. people have a fixed budget, at least the masses do. if $10k buys a 1.5ct now then they will buy that, if $10k buys a 0.75 several years later, they will buy that. an entity buying up all the 1.5 carat diamonds will just divert the diamond money to other sizes, creating a void for 1.5 carat diamonds. while the price may increase for those 1.5ct stones, the demand wont, making the price come back down to move the stones.

diamonds are NOT a good investment. they are not like gas where people use a fixed quantity. people dont dictate how many carats of diamonds they need, they decide how much money to spend. the price per carat may increase, but the total cash flow into the diamond industry will not increase with prices increasing faster than inflation. people dont NEED diamonds.

the only point diamonds become a good investment is at points where the buyer wants a specific stone, and has the cash, and the willingness to spend whatever it takes to get that stone. that acccounts for an extremely small part of the diamond business. if someone has the cash to spend $1mil on a diamond, then they probably have the cash to spen $2mil on the same diamond... that is where the investment is.. it will never trickle down to the masses on a item such as this.

 

[strmrdr]

Date: 6/28/2007 7:31:51 PM
Author: strmrdr

The industry as a whole needs a kick in the pants and that might just do it.

I want to clarify that a little....
The Internet is already dragging the industry kicking and screaming into competitive pricing and value add.
At the dealer level and in some cases the cutting house level it is the kick that has already happened, but will it be enough to drag the rest of the industry along?
In the long term yes, but a failure of any segment of the market would be a kick in the pants to get the rest going and move the movement upstream faster.

 

[Beacon]

Interesting concept. Are they going to be buying the big stones as rough and cutting them up to resell? Then maybe I can see the point. Otherwise, I don't get it.

This closed end fund would have zero impact on diamonds for consumers (meaning less than 30K per stone type consumers). I have no worries there. As a closed end fund, it would be subject to the ebb and flow of market forces. I would expect this one to trade at a rather substantial discount to net asset value. Mainly b/c net asset value is a rather murky point here.

When you stop and consider the metrics of this deal: unique commodity with hard to value pricing, very limited number of buyers, even less number of sellers, zero income derived from portfolio holdings, ongoing cost of holding portfolio assets (e.g. storage, insurance, audit). It adds up to this:

Find a bunch of rich guys who are willing to fund this deal. Buy up stones from folks willing to sell. I am sure sellers will be thrilled! The people who will make money here are the diamond sellers and the guys who set up this fund and take a management fee.

So easy to manipulate asset value. You can mark-to-market the big chunks of the fund based on one unique sale, further, it may or may not be clear that such a sale is bona fide.

Sounds like this fund will itself face liquidity problems. Likely pretty big spread between bid and ask and a significant discount to net asset value. Buyer beware.

I hope it comes to be. Certainly cannot be in US markets what with Sarbanes-Oxley, but in UK it might fly. I would love to stand aside and watch the trajectory of this one.

 

[Paul-Antwerp]

Just a suggestion for the diamond aficionados here.

Say you have put 10K aside, and decide to buy a piece of this fund, based upon the presumption that prices of the huge diamonds will increase heavily in the short to mid-term.

After a year, you might have made a nice enough profit to step out of the fund, recover your investment of 10K, and buy a nice 1Ct-diamond with the profit made.

Not that I suggest you to do this, but if you really are convinced that such a venture will drive prices up, especially in these big sizes, nobody stops you from riding along on that same wagon.

Just my 2 cents,

 

[diagem]

I hear and feel the skepticism..., and I understand it..., and naturaly I should be skeptic too.

But for some reason this time around seems a whole lot different than the late 70's...
It seems prices are moving based on the Diamonds themselves..., sure there are strong hands in this game..., but I dont think any particular hands are controling the steering wheel...

Just imagine its a train this time on route to its "natural" target...
Now let us ask what is natural? Any ideas anyone???

Only time will tell..., and the easiest thing is to just get off the train...

I feel the vibrations..., I cant identify the direction quite yet!!

 

[Cehrabehra]

Date: 6/28/2007 6:28:25 PM
Author: DiaGem

Date: 6/28/2007 4:45:37 PM
Author: Dee*Jay
Interesting article DiaGem.

I haven''t fully analyzed the information yet, but as the Chief Compliance Officer of a hedge fund complex the two things that really lept out at me while I skimmed the article were liquidity and valuation. In my industry if you have something that can''t be sold easily it''s considered to have low (or no) liquidity and you have to haircut the price--sometimes quite a bit, and more and more as time goes on. On the valuation point, I just don''t think there is (or has been) enough activity in the legitimate free market to be able to value these stone accurately. I mean, think about the stones that have sold at auction as an example. The potential emotional/setimental ''value'' associated with some of them due to their histories and previous owners has driven up the price to a level well beyond a reasonable legitimate value.

Oh, and the part about diversification (YELLOW as well as WHITE!!!) made me laugh out loud!

Dee*Jay,

Diamonds are very liquid..., especially when in strong hands...
Diamonds are one commodity that is still backed up as far as value appreciation..., now some would dissagree in categorizing Diamonds as a commodity.
If you compare the appreciation of Diamonds vs. other precious commodities... (in the past few years), great potential lies in the Diamond!

Provenance is a added value in Diamonds just as in any other art..., now let see if the two can combine.

reminds me of the thread I started about knowing the cutters.... we have a few out there we could solicit like art... (HoF, Infinity, Bray, um.... YOU) but by and large diamonds are NOT treated as such and I find that hugely disappointing as I consider my diamond and its ring to be a collaboration between two artists and my greatest and most expensive piece of art. I can honor the ring designer but the diamond is generic

 

[CaptAubrey]

De Beers paranoia is misplaced here. This is the last thing the De Beers of old would have wanted, because it''s another step toward treating diamonds as commodities rather than objects of romance.

As Chaim points out, had someone attempted this in the early 80s, De Beers would have frozen them out of the market in an instant. A few phone calls to their largest sightholders would have shut the project down before it even got started.

There are a lot of problems to be solved with diamond futures, but we seem to be moving inexorably in that direction.

 

[Garry H (Cut Nut)]

I have been away for a month and my last business port of call was Antwerp.
This presentation was relevant to this discussion thread

Martin Rapaport gave a presentation to the trade in the fabulous old diamond bourse in Antwerp last Wednesday.
The presentation was marred by a on / off sound system, mobiles constantly ringing, and people standing at the back of the hall talking. I think this understandably rattled Martin.

After a run down on the ‘state of the industry’ and the effects (or delayed impact) of China and Indian diamond consumers and the weakening US $, he launched into his hopefully new business.

He is attempting to get US govt and stock market approval for a transparent and open to all (consumers, investors, hedge funds and the trade). He is selling the idea to the trade that they will be able to hedge against market value fluctuations on forward sales and delivery agreements that manufacturing cutters enter into with their very large clients. But he was very thin on real descriptions.

The only really clear part was that he will list an index that can be traded as a futures contract. As I understood it he said the first ‘product’ would be based on the traded values of a basket of diamonds sold through Rapaport. The criteria was >1ct <1.5ct D-K IF – VS2 VG VG Non Fluoro. The stones would (initially) only be GIA graded. No mention was made of Cut Grade, only sym and polish. The futures deals would never involve actual physical delivery of diamonds, would of course be cash settled just like currency and most other commodity trades.

But he also talked about how the same diamonds could effectively be traded hundreds of times over with many new opportunities for those in the trade. Vaguely he mentioned that this could result in real diamonds being sold, and although De Beers has famously always preferred that diamonds be sold and become heirlooms, never again to change hands for money, he noted (correctly) that there are probably more diamonds in USA than in the ground in South Africa. Somehow (unstated) he envisages that there would eventuate a fungible after market for diamonds, and that those in the trade could make much more money by selling already sold diamonds. But as many of us know the grading standards of GIA have varied over the decades. One wonders if old reports would be accepted? Perhaps this is a push by GIA/Rap (he is the overseas shipping agent to GIA) to raise the number of stones that get graded, regraded, or get grading report checks, all of which was being discussed by the people in the bourse after the presentation.

The supposed real reason (discussed on the street) for the presentation is that ABN AMRO and Polished Sales.com are apparently announcing their own plan the next day (but I have left) based on HRD reports. We wait to see what and when IDEX and maybe Polygon also release their virtual trading?

In a simplistic manner, what this would mean is that when you open the business section of the paper you could see if diamonds got cheaper or more expensive each day, just as you can with gold and currency values, and share market indicies.

So as Paul says, perhaps you could invest and get a diamond on the proceeds, or perhaps you will loose your $$$''s?

 

[Beacon]

This would be a much more effective way to speculate on the future prices of diamonds than the closed end fund scheme that started this post. It could be done rather easily, but one has to wonder - how free is the commodity price of diamonds? It''s still a cartel driven price, right?

But then again, crude oil prices are largely set by OPEC and they trade contracts on it all the time, so diamonds could be just the same.

I wouldn''t count on funding your ering upgrade on the profits though. Futures are a zero sum game - one winner, one loser and therefore mostly only profitably employed by people who actually need to hedge the commodity for their business.

 

[Garry H (Cut Nut)]

Date: 7/2/2007 9:14:36 PM
Author: Beacon
This would be a much more effective way to speculate on the future prices of diamonds than the closed end fund scheme that started this post. It could be done rather easily, but one has to wonder - how free is the commodity price of diamonds? It''s still a cartel driven price, right?

But then again, crude oil prices are largely set by OPEC and they trade contracts on it all the time, so diamonds could be just the same.

I wouldn''t count on funding your ering upgrade on the profits though. Futures are a zero sum game - one winner, one loser and therefore mostly only profitably employed by people who actually need to hedge the commodity for their business.

Agreed Beacon.

De Beers does not have cartel power any more, and polished has always had its own seperate cycles with only some influence from rough pricing. 1ct size is more realistic than +$1million dollar stones, which in my mind would be susceptable to crashes in share markets etc just as fine art funds tend to be.

 

[Paul-Antwerp]

Date: 7/2/2007 8:29:40 PM
Author: Garry H (Cut Nut)

The only really clear part was that he will list an index that can be traded as a futures contract. As I understood it he said the first ‘product’ would be based on the traded values of a basket of diamonds sold through Rapaport. The criteria was >1ct <1.5ct D-K IF – VS2 VG VG Non Fluoro. The stones would (initially) only be GIA graded. No mention was made of Cut Grade, only sym and polish. The futures deals would never involve actual physical delivery of diamonds, would of course be cash settled just like currency and most other commodity trades.

The supposed real reason (discussed on the street) for the presentation is that ABN AMRO and Polished Sales.com are apparently announcing their own plan the next day (but I have left) based on HRD reports. We wait to see what and when IDEX and maybe Polygon also release their virtual trading?

In a simplistic manner, what this would mean is that when you open the business section of the paper you could see if diamonds got cheaper or more expensive each day, just as you can with gold and currency values, and share market indicies.

So as Paul says, perhaps you could invest and get a diamond on the proceeds, or perhaps you will loose your $$$''s?

Just two corrections, Garry.

The sales upon which Rapaport wants to base his index is a monthly open tender, starting with GIA-graded stones between 1.00 and 1.15 Ct.

The competitive index is a development of ABN-AMRO, WWW (which runs the site polishedprices.com), the Chicago Board of Trade, Cargill and the further development of this index will be co-sponsored by AWDC (Antwerp World Diamond Center, which stands for the old non-profit promotional part of HRD).

Live long,

 

[Garry H (Cut Nut)]

Thanks Paul