A New York-based know-how firm is trying to succeed the place a number of companies have failed and make the $1.2tn world market for diamonds extra accessible to monetary investors, by way of the creation of a futures contract and a fund monitoring the value of the gems.
Diamond Standard is making an attempt to set up the equal of the gold bar for the dear stone market, which is dominated by jewelry homes and which, in contrast to gold, is just not commoditised. It plans to launch a futures contract for diamonds on the Minneapolis Grain Exchange (MGEX) by the top of the 12 months, chief govt Cormac Kinney informed the Financial Times.
If profitable, that will pave the best way for a diamond-backed exchange-traded fund to be launched as quickly as the top of subsequent 12 months, ought to the firm give you the chance to clear up longstanding issues of fungibility and liquidity which have in the previous prevented gem stones from buying and selling like different commodities.
Diamond Standard faces an uphill battle to flip diamonds right into a tradeable market. Every stone is exclusive, whereas futures markets can take years to construct. MGEX’s proprietor, Miami International Holdings, has but to begin the approval course of with US derivatives markets regulators to checklist diamond futures and choices contracts.
Many earlier makes an attempt to create alternate autos to make investments in the dear stone have fallen flat, in accordance to diamond trade analyst Edahn Golan.
Specialised diamond fund Diamond Circle Capital listed in London in 2008 earlier than liquidating its gemstone portfolio 5 years later. IndexIQ filed a prospectus to arrange a diamond ETF in 2012 however by no means launched. And Swatch-owned jeweller Harry Winston had plans the identical 12 months to arrange a $250mn fund to purchase diamonds with money from institutional investors.
Diamond Standard launched a peer-to-peer buying and selling market in September for bars and cash that include equally valued clusters of diamonds encased in a slab of plastic resin. Along the underside runs a slender wafer housing a chip used for authentication and transactions that has a QR code imprinted on it. Each coin is value $5,210 whereas every bar is value $52,100, and the merchandise have attracted rich people and household places of work.
Kinney mentioned that launching a futures contract is the following step in the direction of attracting massive asset managers to purchase diamonds as a part of their funding portfolio.
“Diamonds are worth more than silver, platinum, palladium and rhodium combined. It’s a neglected resource that investors couldn’t touch as each diamond is different,” he mentioned.
The transfer comes as gold costs method a report excessive, reflecting investor demand for protected locations to park their money throughout occasions of inflation and shocks to the worldwide system. Diamonds have tended to maintain their worth by way of occasions of financial turmoil, whereas they usually show low value volatility and profit from a tailwind of declining mine provide.
However, diamonds cope with the problem that every stone varies based mostly on the so-called 4 Cs — cut, color, readability and carat weight — that means they don’t seem to be readily interchangeable in the best way a barrel of oil is perhaps and pricing transparency is hard.
“Diamonds are definitely a very attractive category as they are high value versus weight, have low volatility and consistent price growth,” mentioned Olya Linde, companion at Bain & Company’s power and pure sources apply. “However, there are issues — fungibility and a transparent spot price — that need to be resolved.”
Diamond Standard, which has raised $45mn to date, has struggled to date to construct liquidity with solely $900,000 value of buying and selling final month however Kinney is hopeful of rising that after a futures contract is established.
The diamond trade can solely dream of replicating even a slice of the gold trade’s success. Gold-backed ETFs exploded in recognition twenty years in the past and about 30 per cent of the yellow metallic market is allotted to investors. Increasing investors’ share of the $1.2tn diamond market from the present 1 per cent to half of gold’s ranges is equal to $180bn and would push up diamond costs, in accordance to Kinney.