Following the popularity of gold- and silver-backed exchange-traded funds (ETFs), plans are afoot to introduce the first diamond ETF.
The Securities and Exchange Commission is reviewing a proposal for the fund, The New York Times reports. The fund would purchase one-carat diamonds and store them in an Antwerp, Belgium vault. The fund’s issuer, IndexIQ, would create an index on which to base the fund’s value.
Proposals are percolating for other diamond investment funds too.
“Diamond is the last un-commoditized commodity, and so it’s drawing in many organizations,” Edahn Golan, editor-in-chief of IDEX Online diamond information service, tells The Times. “I assume that by the end of this year there will be a bunch of them out.”
Demand won’t be a problem for a diamond ETF, Tom Lydon, president of Global Trends Investments, tells CNBC. But pricing will be.
“When you look at these ETF providers trying to get into the space, to a degree it’s the tail wagging the dog,” he says. “They’re trying to force the industry to have standardized pricing.”
But diamond sellers want to keep prices opaque, as that allows them to make more money, Lydon says.
Citigroup analyst Oliver Chen cautions that diamond prices may prove more volatile than gold, because consumers account for 98 percent of diamonds’ end use, compared to 50 percent for gold.
But he’s bullish on diamond prices, predicting to CNBC that they will rise 6 percent annually for the next decade.
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