By Jim Paulson
Diamonds are both durable and valuable, making them ideal for investors trying to store wealth over a long period of time. However, investing in diamonds has traditionally been a tricky process, for various reasons. The creation of a diamond ETF as an alternative should therefore be welcomed by investors.
In short, an ETF (exchange-traded fund) is an investment fund structured around an index. Shares in the ETF are bought and sold like other stock. So, where the ETF is based on a commodity, its shareholders do not buy the actual commodity, only shares in the ETF.
Establishing an ETF for diamonds is a challenge for several reasons. The diamond market was subject to an international monopoly by the De Beers Group until 2001, and at present the number of players in the industry is still limited. Ordinary market forces therefore have a limited influence on price.
Also, diamonds are not easily classified in terms of their price. They do not provide homogeneity in supply as other commodities like oil and gold do. There are vast divergences in quality and size. As an example, two stones of the same weight in carats may not be of the same quality and therefore do not command the same price.
Issues such as these make diamonds harder to organize as a traded commodity with a standard price on the market. An ETF therefore allows investors to relinquish the need for expert knowledge and industry connections, since they simply invest in the fund. The danger of investing in blood diamonds is also alleviated for them.
The end of the De Beers monopoly in 2001 has seen diamonds become increasingly attractive as an investment opportunity. Making use of a diamond ETF takes much of the danger and homework out of such an investment. So, while the investment doesn't need to be forever, it will be safer if routed through the ETF.
In short, an ETF (exchange-traded fund) is an investment fund structured around an index. Shares in the ETF are bought and sold like other stock. So, where the ETF is based on a commodity, its shareholders do not buy the actual commodity, only shares in the ETF.
Establishing an ETF for diamonds is a challenge for several reasons. The diamond market was subject to an international monopoly by the De Beers Group until 2001, and at present the number of players in the industry is still limited. Ordinary market forces therefore have a limited influence on price.
Also, diamonds are not easily classified in terms of their price. They do not provide homogeneity in supply as other commodities like oil and gold do. There are vast divergences in quality and size. As an example, two stones of the same weight in carats may not be of the same quality and therefore do not command the same price.
Issues such as these make diamonds harder to organize as a traded commodity with a standard price on the market. An ETF therefore allows investors to relinquish the need for expert knowledge and industry connections, since they simply invest in the fund. The danger of investing in blood diamonds is also alleviated for them.
The end of the De Beers monopoly in 2001 has seen diamonds become increasingly attractive as an investment opportunity. Making use of a diamond ETF takes much of the danger and homework out of such an investment. So, while the investment doesn't need to be forever, it will be safer if routed through the ETF.
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To read additional information about the diamond ETF, and to learn more aboutare diamonds a good investment, simply call Investment Diamond Exchange (IDX) and account representative will assist you.
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