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Diamonds for Wealth Preservation: Trading Platforms

Ehud believed that one key component required to reach a critical mass of people who believe in diamonds for wealth preservation is the establishment of trading platforms.  

"For diamonds to actually be an asset for wealth preservation, […] investors would need a place where they can buy and sell diamonds. Diamond trading platforms."

The lack of a viable mechanism to buy and then resell diamonds for investment purposes is therefore a key obstacle to overcome, and Ehud elaborated upon this.

"One of the biggest issues that the diamond industry faces in this regard is that there is no known mechanism for selling diamonds back into the diamond industry. This is because we are yet to tell the story of reselling diamonds."

"I envision a classic spot market for diamonds. A list of goods available for trade is published regularly, traders can buy and sell openly, and non-traders interested in buying or selling their diamonds can do so via brokers, just as we use banks to buy and sell shares. A database of spot prices is created, prices are updated instantaneously as trading takes place, and goods are delivered immediately to buyers."

"This diamond spot market has a full banking envelope, starting from clearing transactions, to providing financing against these assets. Of course, just like any other exchange, the local authorities will need to license it, and perform trading oversight of the kind the Securities and Exchange Commission provides for the New York Stock Exchange. The banking envelope and the oversight are essential components to forming confidence in asset trading of any kind, including diamonds."

"Around this spot trading activity, additional non-spot trading activities can be created. For example, financial instruments such as a diamonds futures market, a derivatives market, or securities, all bought and sold based on a diamond spot market."

"With a spot market backed by large banks and supervised by an appropriate authority, think of the impact on the structure of the revenue stream that international diamond spot markets can have on the diamond pipeline."

"In a previous article , we showed that out of the +$20 billion in polished diamonds manufactured annually, about $8 billion are fit for asset preservation. Instead of +$20 billion in polished diamonds that today go almost exclusively to jewelry, $8 billion can potentially be allocated to spot market trading. This means that spot markets won't just track prices of traded goods; they may even set prices of polished diamonds that are funneled to jewelry."

As Ehud stressed, and covered in previous blogs in this Insights series, a necessary condition for establishing successful trading platforms is for diamond prices to be reliable and transparent.

"The key to having a viable spot market is full disclosure about the diamond, transparency, contribution to education, and successfully bringing buyers and sellers together. […]"

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