How diamonds are regaining their sparkle

Investors take a shine to online diamond trading They’re a product that people don’t understand Listen (05:55)     08/03/2010 by Genevieve Roberts

While the clarity of diamonds has always been treasured, the multi-billion dollar industry has historically been one of the world’s most opaque, which has been seen as off-putting to potential investors.

Paris-based jeweller Alexandre Murat says diamonds are a “paradox”.

“There is emotional implication from the customer as they are bought for happy occasions such as weddings, births and birthdays,” he says.

Yet recently, Murat, CEO of Adamence, has had clients clamouring to invest in diamonds. “We have had some clients saying they would like to buy five or ten diamonds. They have explained that because of the financial downturn, they would prefer to invest in diamonds,” he told RFI.

But how is such a closed industry opening up to outside investors? And why are people getting interested in diamonds now?

One year ago, a company at the heart of the diamond district in Antwerp, Belgium, launched an online trading platform for diamonds. DODAQ is not only the world’s first online diamond exchange, but also the first public exchange for the polished stones.

While people have been able to trade gold, stocks and shares online for years, until the diamond exchange was launched the public had no way of knowing how much polished diamonds were buying or selling for - let alone being able to invest in them.

The trading platform allows people to determine the real price of diamonds at any time of the day or night, and only takes certified polished diamonds from members of the World Federation of Diamond Bourses.

This ensures that the stone that the polished gem came from has passed through the Kimberley Certification Process, meaning that the proceeds from their sale doesn't contribute to any armed conflict.

Polished diamonds are also given grading certificates. Alex Fray, the financial chief of DODAQ, says that without certification, the exchange would not have been possible.

“The widespread adoption of certification for polished diamonds within the industry has effectively standardised the market, thus enabling electronic trading without the physical need to inspect the asset,” he says.

The timing for the launch, in the middle of a recession, may seem counter intuitive. But Peter Temple, author of the Handbook of Alternative Assets, says that in a financial downturn people look to invest in assets that they can see, as they lose trust in stocks and bonds.

He says this is why gold prices keep breaking records, and diamond prices are set to rise.

Temple says there are various similarities between gold and diamonds. “There’s the scarcity aspect, and both are priced in dollars. And they’re both portable,” he says. “Gold in particular is seen as a store of value, something that will protect your cash at times of high inflation. With diamonds, there is an extreme shortage of supply of high quality stones.”

He says that while gold has already benefitted from this recession, diamonds have some catching up to do. This is because diamond dealers typically rely on loans and credit, which were hard to obtain last year, so diamonds didn’t benefit as quickly as other alternative commodities such as gold, art or wine. He predicts that diamond prices may rise up to 15 per cent this year.

Whether diamonds are soon going to become as popular an investment as property or gold remains to be seen. But it seems clear that if diamonds are the dormant giant of commodities, then transparency within the industry is crucial for them to realise their worth.