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Is Commoditisation Upon Us?

In an attempt to further commoditise diamonds, diamond industry services group Rapaport recently completed their first certified diamond auction.

As this article in The Age explains, this type of thing is nothing new – “In 1972, 194 diamond contracts were traded on the West Coast Commodities Exchange over a two week period before prices collapsed and the exchange ended diamond futures trading”.

Of course, any event like this is bound to draw widespread criticism from the industry, but it does beg the question – have diamonds reached a point where they can be traded like gold or oil, or is every diamond unique and therefore must be sold in the traditional, individual way?

Well, if you’re going to commoditise diamonds, then there obviously needs to be some sort of standardisation. A couple of weeks ago, we wrote about diamonds as an investment. In this post, we mentioned that both the certificate and cut are important when considering a diamond as an investment. It therefore comes as no surprise that the Rapaport auction featured only GIA certified stones of either a “very good” or “excellent cut”. They also limited the clarity grade to VS2 and above, and the colour grade to K and above, with no fluorescence, as well as only listing stones 1ct and above. Rapaport also guaranteed the grading of each stone, stating that buyers could re-submit the stone to the GIA, and if the grading was wrong, then the buyer could return the stone for a full refund.

At the end of the auction, only about 30 of the 210 stones were sold, but looking at the high bids, I would say that most, if not all of the reserve prices were too high, and the highest bids were probably only 1 or 2 percent off the reserve. However, at the end of the day the auction showed that:

  • The diamond industry is strong, and that diamonds can be treated like a commodity if traded like on – with set standards and fair rules.
  • That GIA certificates are the standard, and most trusted in the world.
  • Either diamond prices are too high or there is still along way to go to complete commoditisation, as less than 30 out of 210 stones were sold.
  • A diamonds’ cut and certificate play a major part in the investment or resale value of a diamond.

The next auction is scheduled to take place on October 25.

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