Why Aren't Diamonds an Exchange Traded Commodity?

  • Managed Futures 101

The role of the commodity markets is to allow producers and users a method to hedge price risk.  Commodity producers/users use exchange traded commodities to lock in prices of items they will bring to market or purchase from the market at some point in the future. Commodities that are popular among hedgers, include, corn, soybeans, crude oil, gold, silver, livestock..etc.  The exchange transactions between producers and users, however, create a marketplace that makes it possible for speculators to trade these commodities, without the requirement of taking delivery of the physical commodity.  While new commodities are introduced periodically, individuals have been yearning for the creation of a diamond market.  So why has it not happened?

The diamond industry was largely a monopoly until the year 2000 controlled by the De Beers Family of Companies from the mid 1800s through 2000.  They controlled the supply of diamonds in an effort to control prices. After 2000, the monopoly was lifted, however, the diamond industry is still considered a "oligopoly," with a few companies controlling the supply of most of the diamonds available. 

The biggest hurdle to creating an exchange traded diamond market is the lack of standardization within diamonds.  Unlike gold or silver, diamonds vary significantly from one stone to the next.  With variations in carats, cuts, and clarities, it would be difficult to standardize a product for the purposes of being traded on an exchange. Since most speculators in the derivatives market never actually take delivery of a physical commodity, this arrangement may be suitable, although delivering the appropriate diamonds may be a challenge should a buyer wish to receive them.

Whether diamonds eventually end up on an exchange is yet to be seen.  Despite numerous attempts in the past, there is still a large debate about whether diamonds are even a real "commodity."  Unlike most other commodities, diamonds are rarely used in any industrial process, and their biggest use comes in the production of jewelry.  Besides jewelry manufacturers, what types of hedgers would even want to lock in prices of diamonds? Speculators look to benefit the most from a diamond derivative, as they would have an opportunity to trade diamonds without physically "trading" them.

Disclaimer: Past performance is not indicative of future results. Futures trading involves substantial risk of loss and may not be suitable for everyone. By no means is this newsletter/blog post offering any investment advice or suggesting to make any trade recommendations. Please consult an aiSource advisor prior to opening any managed futures accounts.


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Past performance is not necessarily indicative of future results. Trading commodity futures, options, and foreign exchange ("forex") involves substantial risk of loss and is not suitable for all investors. In no way is the advisor of the month a direct recommendation of aiSource or any of its affiliates. Please carefully review the disclosure documents and any other promotional material prior to investing with any program. Managed accounts and/or managed futures are very risky and may not be suitable for all investors. Please consult with a Managed Futures specialists prior to investing.