The extremely variable pricing of diamonds has made them a historically difficult and unstable commodity to trade. However, recent advents in diamond technology have been patented, and industry insiders such as have suggested that diamonds will become akin to gold from an economic standpoint.
There is certain market resistance to the notion that diamonds could become an investable resource, largely due to the fact that it would create a more objective pricing scheme. It has been difficult to establish an investable market for diamonds due, in no small part, to their uniqueness. The price of diamonds is dependent not just on mass (like gold), but , as well. Even slight variations have drastic influences on the price of the gems. Additionally, unlike gold, diamonds decline in value when divided, and are in too short supply to be used as a currency, which has inhibited the creation of a . However, it is important to note that only approximately 30% of mined diamonds are used for jewelry and sold as precious gems, with the .
In addition to the difficulties inherent in standardizing price based on gem quality, resistance from some within the industry has hindered the development of a standardized market. This is because the would increase transparency in pricing, protect against inflation, and open a narrow market to a large number of investors. However, individuals such as Rapaport have fair, efficient, transparent, and free diamond markets, as it would benefit the economy and the surrounding diamond mining. Indeed, Rapaport’s efforts have led to the , an international initiative to “clean up” the diamond market and reduce the trade of conflict diamonds.
Beyond politics, however, how do we get around the issue of variability in the gems to create a more open market for diamond trade? The answer may be within recent patents.
, an investment firm that declares diamonds to be the “last untamed commodity”, that details a process to create fungible diamonds. That is, they seek to create benchmark “baskets” of diamonds based on the quality indices, ultimately creating diamond securities through their patented formula of determining “investment grade” diamonds. Ultimately ten “layers” of quality/value would be created using the GemShares method to create such benchmarks, and it has been projected that these indices by mid-2013.
wants to take the process one step further. A producer of synthetic (lab-grown) diamonds, they have acquired that will allow them to produce single-crystal diamonds with identical chemical composition to those that are naturally occurring. Beyond this ability to create near perfect diamonds, Scio can mass-produce batches of identical, made-to-order diamonds through their use of plasma reactors for growth, and new throughputs for productivity. Indeed, earlier this month, Scio indicated that their first three months of production . It would seem that Scio’s patents have already begun to shape the budding diamond markets, and perhaps not in the way that economists may hope. By having one company hold patents for high-throughput production of museum-quality gems, it creates a different sort of monopoly. Moreover, if their production is as high as they indicate, it could reduce the value of existing diamond markets through oversaturation before a competitive market is even established. It is quite likely that both GemShares and Scio stand to make large profits as a result of their patents, but the sustainability of their prospective market remains to be seen.
Whether the standardization of diamonds is socially beneficial is more of an ideological debate, but one with economic implications. Of course, diamonds have long been coveted for their uniqueness, but that very uniqueness may be hindering an openly investable market. However, if such a market is developed based on the creation of uniform stones, will the allure of the stones still be as strong? Only time will tell…
Ryan Heighton is a JD Candidate at Osgoode Hall Law School.