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Diamonds have long been a store of wealth but traders have not had the chance to optimally invest in the gem. However, a diamond-backed exchange traded fund is one step further in the making as a financial firm seeks to commoditize diamonds.

According to a U.S. patent office filing, GemShares is trying to create a method of standardizing baskets of gems to be used in financial and commercial products. Diamonds come in the "four Cs" of carat, collar, clarity and cut, and the GemShares method will create a benchmark basket that arranges diamonds in 10 layers of comparable quality and value.

Currently, the diamond market is very illiquid as individual dealers do not have a universal price gauge to reference, such as a commodity exchange.

"Everyone knows the price of gold," Andrew Feldman, a financial adviser who helped develop GemShares, said in a Wall Street Journal article. "No one can tell you what the price of diamonds is: Each one is unique unto itself."

Diamond producers and dealers are among the first likely candidates to acquire diamond securities, similar to how farmers or gold miners use commodity futures to hedge risks.

Additionally, speculative and investor demand may also use diamond securities as a hedge against depreciating currency values.

Feldman does not know when tradable diamond securities will be officially ready. However, his firm is in discussions with major financial players, and the market may look for a diamond ETF after mid-2013.

Max Chen contributed to this article.

Source: Diamond ETF Moves One Step Closer To Launching