Fortune: Diamonds Could Become the New Gold
Friday, 21 Feb 2014 07:22 AM
Investment Diamond Exchange (IDX) opened a trading exchange last year, allowing private and institutional investors to buy certified rough and polished diamonds — as investments, not jewelry. And Chicago-based GemShares and the Nasdaq OMX Group are working to create GemShares Global Investment Grade Standard Diamond Basket Index, which could be used for an exchange-traded fund backed by diamonds to be created,Fortune magazine reports.
Chinese demand for the precious gems is helping drive demand, as Chinese men adopt the American custom of buying diamonds for their sweethearts. The one-child policy has led to a smaller ratio of women to men, giving new leverage to young women.
"If you're a woman in China and you want a diamond ring, you can certainly find a man to get you one," Rick de los Reyes, portfolio manager for T. Rowe Price's Global Metals and Mining Strategy, tells Fortune. "You're pretty much in the driver's seat."
A recovering economy has strengthened U.S. demand as well. American diamond imports of polished diamonds increased more than 16 percent to nearly $23 billion from 2012 to 2013, Fortune notes, citing market research firm Rapaport Group. The average price of diamonds increased approximately 14 percent to $1,855 per carat.
However, valuing diamonds is more complicated than is pricing gold and other commodities. Their value is based quality — cut, clarity and color — in addition to carat, or size. Price estimates can vary significantly depending on the person examining a diamond. What's more, prices of different types of diamonds often change depending on what's currently popular. For instance, pink diamonds were once in style and now are out. Now chocolate diamonds are in.
Los Angeles-based IDX is expanding its workforce in response to more hedge funds and other financial institutions buying rough diamonds as investments.
"The favorable supply and demand fundamentals for rough diamonds along with some structural changes that have increased the transparency and efficiency of the diamond industry are a few of the primary reasons why the investment community has embraced rough diamonds as an investment," states Managing Partner Kristopher Schellhas.
"Investors must proceed with caution and utilize the services of an industry professional before proceeding forward with an investment of this nature," says IDX Managing Partner Chris Duffield. "Navigating the rough diamond market is incredibly difficult for anyone new to this industry."
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