Slowly but surely, the tide is turning. For decades, the diamond industry feared the idea of diamonds serving as an investment. Some will say that such attempts in the 80s led to major loss of value and erosion in the perception of diamonds, but most simply wanted to see diamonds as a symbol of love and no more. Diamonds as a component in jewelry sold for a good margin. However, a series of recent initiatives shows how the market, the investment world, and even the industry are starting to accept the idea that diamonds are much more than just something pretty. They have financial power.
In August, India Commodities Exchange (ICEX) launched a futures market of 1-carat round diamonds. Last month, the first contract expired, and on December 5 the second contract expires. Soon, 0.5-carat futures contracts will be launched as well, followed by contracts for 0.30-carat diamonds. The diamonds are graded by De Beers’ International Institute of Diamond Grading & Research (IIDGR), and Malca-Amit is providing vaulting services.
The 1-carat diamonds are H color, VS2 clarity, and triple Excellent, with no black or dark inclusions. Investors can trade these contracts all day during every workday.
The first contract was modest. ICEX delivered 26.27 carats of diamonds worth 8.3 million rupee (about $129,000) as settlement on the expiry of its first diamond contract on November 3, and ICEX stated that it had another 40 carats of diamonds in its vaults. During the contract period, the total traded quantity of the contracts stood at 5,382.08 carats, worth nearly $27 million. Percentage of delivery against the total traded quantity was 0.53 per cent, showing the potential of this market. Maybe most interesting was that the future and spot market prices have converged.
Another company active in the market is Singapore-based SDiX. Launched this past October, SDiX lists a “Diamond Bullion,” a collection of diamonds stored in a tamper-resistant sintered zirconia case the size of a credit card, with a unique optical signature recognition system and serial number. Using a mobile app, the package can be authenticated with the serial number and optical signature. The diamond packages are offered at values of between $100,000 and $200,000. Issued by the Singapore Diamond Mint Company (SDM), the diamonds packed into a Diamond Bullion are either 1 or 2 carats, DEF color, VVS1- VS1 clarity, and triple Excellent, with no fluorescence. The diamonds are certified by the GIA, and inscribed with IIDGR’s proprietary table inscription.
Traded exclusively on SDiX, the company is the world's first electronic exchange for trading investment-grade diamonds. Only approved investors can order these parcels via broker members of SDiX and other SDM distribution partners. After the order is fulfilled, the Diamond Bullions can either be sent directly to the buyer or stored locally at the Singapore Freeport.
The diamonds selected by ICEX in SDIX for investment are appropriately called investment grade. They offer a balance between rarity and availability – VVS and VS quality diamonds are rare, but available enough in the market so that when the futures or trading markets purchase them, the purchase itself would have a limited (and not material) impact on prices of these types of goods.
Two other recently announced initiatives incorporate new technologies to create new financial offerings. The first is CEDEX.com. It describes itself as “a global exchange that focuses on bridging the gap between the traditional diamond industry and the innovative financial markets.” As such, it aims to create a marketplace where people can sell their diamonds, or invest in them. CEDEX is offering to invest in diamonds in the same way we invest in any other asset - in a transparent and secure way. They are not telling buyers which diamond is an investment-grade diamond. Instead, they offer to resolve the question of what is the true value of a diamond with the use of a machine learning algorithm and blockchain technology that rates a diamond’s asking price. This value is listed on the exchange, and is completely transparent. Investors can either invest in a single diamond, a share of a high-value stone, or shares in a basket of diamonds. The value can also be used for selling a diamond.
Finally, the latest new venture is Carats.IO. Due to launch later this week, this startup intends to offer a diamond-backed digital currency. Buoyed by the wave of cryptocurrencies, the CARATS.IO Diamond Currency (CDC) will be based on an index that reflects diamond-trading activity in the Israel Diamond Exchange. The currency will be based entirely on investments in diamonds purchased at the Israeli diamond bourse. Differentiating themselves from other digital currencies, the company says that by backing it with diamonds “we are significantly decreasing the speculative level of the investment”.
There was a series of attempts that started in 2009 and they never fully materialized. These attempts were either met with suspicion by the diamond industry, did not get enough interest from the financial community, or simply did not have the right combination of characteristics to make it. However, these four initiatives mentioned above suggest that the concept is finally taking off. As a long-time advocate of diamonds as an asset, I find this wave of activity very encouraging. These initiatives seem to be backed by serious investors, they are met favorably by the diamond industry, and those that have already launched are already reporting a good volume of activity.
Another aspect of their activities that should work in their favor is that they are addressing known issues in the market that others have not, or that others have not addressed sufficiently. Among the issues are offering a clear way to know the buying and selling prices, and selecting very specific and rare diamonds that are easy to trade. They are also providing a place to not only to buy the diamonds, but also to sell them, and they are teaming up with veteran players in the market.
There is one aspect of their activities that I would like them to do a lot more of – offer in-depth education about diamonds, the kind that helped build the art business. With an investment in education, diamonds will gain greater interest as an asset. All initiatives also need to offer serious and reliable tools that allow potential investors to understand the offering and weigh their options so that they can make a knowledgeable decision.
I don’t only preach - I also practice. We have developed a system that collects transaction prices from a wide range of manufacturers, traders and retailers. These many monthly transactions are augmented by constant research in the market, which backs, double checks, verifies and completes the transaction data. The system covers more than 18,000 polished diamond categories across the 4Cs, including polished diamonds weighing up to 30 carats with clarities ranging from Flawless to I3 in colors from D to P and in the various shapes. This data is what allows us to publish a monthly price index.
Our price list provides a price for a top diamond without any irregularities. There is a separate table of irregularities, which provides the necessary discount or premium to find the exact current price of any particular diamond. This polished diamond-pricing system was reviewed and validated by one of the Big 4 accounting firms, and that firm continues to audit the price list monthly.
Using this rich data, we provide a historic price trend tracker , This includes a polished graph tool that compares diamonds to major indices and to gold, as well as the Mercury Polished Price Calculator, a stone finder for defined budget, and a rough price calculator.
We also track changes in demand for polished diamonds and changes in wholesale inventory, which provides an added layer of information that allows us to understand where future trends could develop. Jointly, these are a set of tools that give those considering investment in diamonds as an asset for wealth preservation a solid basis to understand, learn, track and investigate polished diamonds before making an informed decision.
I truly hope that the new and future initiatives succeed. The diamond industry needs to reinvent itself and find ways to expand beyond the current market. Adding an investment market to the diamonds-for-jewelry market will only do us good.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.
Diamond industrialist Ehud Arye Laniado is a man passionate about diamonds. From his early 20s in Africa and later in Belgium honing his expertise in forecasting the value of polished diamonds by examining rough diamonds by hand, till today four decades later, as chairman of his international diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services, Laniado has mastered both the miniscule details of evaluating and pricing individual rough diamonds and the entire structure of the diamond industry. Today, his global operations are at the forefront of the industry, recognised in diamond capitals from Mumbai to Tel Aviv and Hong Kong to New York.