In the United States, diamond valuation is currently a function of the sparkler’s versatility in engagement rings and other pieces of fine jewelry. If you buy diamonds at a jewelry store your jeweler will quote you a price based on color, carats, clarity and cut.
In March 2012, EFT (exchange-traded fund) provider IndexIQ filed a request with the Securities and Exchange Commission to start the world’s first diamond-backed EFT fund. The Securities and Exchange Commission is currently reviewing the plan.
One of the impediments to commodifying diamonds, however, is that diamonds are an illiquid asset. There is no universal gauge to reference a diamond’s true value. Unlike other precious assets like gold, palladium and silver, all of which have been used to back trading funds, diamonds are not uniform. Pricing is subjective, and depends on factors like size and quality.
Different dealers will price the same stone differently.
In April 2012, a company called GemShares filed a patent on a technology for standardizing the value of diamonds to be used in both financial and commercial products. This method expands the current “4 C’s” of caret, color, clarity and cut into ten levels of comparable quality. The cheapest stones are at the bottom of the GemShares “basket,” while the more expensive stones are at the top. GemShares offers precise descriptions for the attributes of each level of stones. The result is that for the first time in history, diamonds may become a fungible commodity.
Since 2008, gold has proven to be one of the most popular hedges against the inflation of paper money. The investors behind IndexIQ are betting that diamonds will become even more popular.
GemShares Valuation Method
GemShares valuation taxonomy is not limited to diamonds alone, says the patent filing. It can be applied to any natural or synthetic precious stone, including diamonds, rubies, sapphires and emeralds.
Initially, GemShares will classify stones on the basis of gemological criteria that are currently in use. These criteria include color, clarity, caret weight, shape, cut grade, measurements, general proportions, finish, fluorescence and culet. GemShares will rely on GIA (Gemological Institute of America) Diamond Reports to provide this basic information about each stone.
Following that, each gem will be graded on the basis of its appearance using a Gemex Light Performance or similar light performance analysis. This analysis examines the optical characteristics of gems of equivalent weight under white light, colored light and scintillation.
Each diamond will also have to meet certain optical symmetry standards to determine the alignment of the diamond’s facets internally, and how light reflects from within the diamond. Each diamond will be graded on both crown and pavilion views. Currently, a diamond can be graded as “Excellent,” but still have extreme variation in angle measurements or other indexing problems.
Finally, diamonds will be tested using reflector technology to make sure they meet a light leakage standard. The highest quality diamonds will have less than 20 percent blatant light leakage.
Each diamond authenticated through these processes has a unique identifying profile, but the differences separating diamonds of the same classification will be so minute that these differences should have no affect on their commercial valuation, GemShares alleges.
Diamond EFTs
Gold-backed EFTs have become the primary wealth driver in commodity trading with annual production in excess of $100 billion a year. Diamonds don’t show the same price volatility, in large part because there’s never been a speculative market for them. If GemShare’s patent for a diamond valuation technology is approved, however, that may change.
In the meantime, you can enjoy beautiful diamonds in engagement rings, earrings, pendants, bracelets and other fine pieces of jewelry.
Trust the jewlery experts at America’s Gold and Diamond Exchange be your guide to the best. Shop their selection of diamond rings in Richardson.
