Are Diamonds becoming a Commodity?

The increase in transparency of diamond pricing offered on varying diamond trading platforms, the increase in demand for diamonds for bridal jewellery and investment from High Net Worth individuals from China, Russia and India coupled with a definitive decline in mining production,  may lead you to believe that diamonds are turning into a hard commodity.

 

A commodity is a product, which should be homogenous, fungible and traded across various markets. These commodities in short have to be similar and interchangeable. For example, gold in one country should be of the same purity as gold from another. Commodities are traded across terminal markets situated in different corners of the world  e.g the London Metal Exchange. These exchanges consist of traders who either spot trade or trade by way of futures contracts.

 

Martin Rappaport, an entrepreneurial maverick within the diamond industry has attempted to create a futures market in diamonds. He argues that diamonds are bought and sold for cash and is a natural resource with a limited supply, defined, certified and traded worldwide. Other similar platforms have also been established with a similar business model and various Diamond funds have been created to offer returns to investors. Is this sufficient to grant diamond status as a commodity?

De Beers along with other mining consortiums and the diamond community argue that diamond is not a commodity as each diamond is unique and is not consistently the same. Diamonds are not standardised as grading laboratories can vary in grading of polished diamonds. You can have a similar cut and carat weight of diamond yet differing colour and clarity resulting in a significant price difference. There is also the difficulty to exchange different sizes of diamond unlike gold whose quality can be exchanged easily.

The Diamond trading platforms can show up to 30% variance in pricing for a particular diamond with like for like Carat weight, Colour, Clarity and Cut. In addition, the buy/sell model of the diamond funds have historically failed to achieve significant returns for investors.

Where diamonds significantly differ from all commodities are their symbolic properties of love and emotion and the concept that diamond is not a necessity but a luxury. Throughout  the early stages of the rough diamond supply chain from mining, assortment, distribution you could argue diamonds are a commodity but once arrived at the Diamond manufacturers where the stone is cut and polished, certificated and then offered to jewellery retailers the diamond is sold to consumers as as symbol of love. There is no room for a commodity and symbol of love to coexist together.

What better way to enjoy the buying experience of your emotional purchase than with the expertise of a jeweller to explain the uniqueness of diamond from rough to polished and then have craftsmen create your bespoke piece of jewellery set with your symbol of love. Absolutely priceless.