7

I understand people can invest in Gold via ETF's which are investments backed by physical gold. My question is, do investments exist which are physically backed by Diamonds?

1
  • 2
    Good question, I am not an expert but I find it fascinating because from most of what I've read it seems to me prices for Diamonds are really just artificially inflated in the retail sector via the DeBeer monopoly. The physical supply of diamonds should not justify such prices in a proper market it seems. I may be wrong, but you may be interested in this Article: blog.priceonomics.com/post/45768546804/diamonds-are-bullshit
    – Beltrame
    Apr 14, 2013 at 13:21

2 Answers 2

8

My gut says such an ETF would be impossible to create. The metals are elements that are definable so there's no question what we are trading. Most bars are stamped '.999 fine' and while we can go off on a tangent of coins, collectables, etc, let's not. I give you a bag of little gold bars, a few hours later, it's assayed, recast into an ingot of larger size and ready to deliver against a contract.

Let's assume Beltrame's concerns are unfounded. Diamonds are not homogeneous as gold (or other metals) are. The same pound of the stuff can range from industrial grade used for expensive sand paper, to a small number of large gems that are priceless. This precludes a physical asset ETF, in my opinion.

Now, you might suggest that houses fall into a similar category. Schiller created an index for house prices, and one might be able to do the same for diamonds if it doesn't already exist. Defining it is beyond me, but I can see an index for the value of a particularly defined diamond criteria using the available sales data.

Edit - For what it's worth, it seems attempt at this is in the woks - Diamond ETFs in the Works — Will Investors Bite?

1
  • 3
    The criteria to classify diamonds are in place and you could have different indices for different categories I suppose. In fact the article I posted goes a little into diamonds being traded as "investment products". I think the main problem is that it is not in the interest of the main suppliers to have a well functioning "free" market which of course is rather essential for a liquid market in derivatives on any given underlying.
    – Beltrame
    Apr 14, 2013 at 20:31
5

It is not impossible but is difficult because nobody can agree on what diamonds are worth.

Most fascination with diamonds is based purely on hollywood's movie industry and the retail advertisements.

To further illuminate this, Wall Street has tried to turn diamonds into a tradable commodity in the 1970s. It failed miserably as prices declined vary rapidly as there was no consensus on price and lack of transparency for any adequate price discovery. For most things the price will just keep going lower until there is a price for a counterparty to want to buy, but in this case trading eventually stopped and diamonds were just a failed product.

Nothing fundamentally different has happened in the diamond market since then.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .