August 9th, 2007

Diamond Futures

futuresMartin Rapaport recently proposed a Diamond Futures index. The idea got a boost from De Beers’ Jonathan Oppenheimer:

Head of De Beers South Africa’s chairman’s office, Jonathan Oppenheimer, supports the concept of a diamond futures market, but says he struggles to understand how the valuation of stock for this trade would be done.

Speaking at the Gordon Institute of Business Science in Johannesburg, Oppenheimer said although he liked the idea of diamond derivatives contracts, it was nearly impossible to get two pools of identical diamonds from two different mining areas.

And diamonds would have to be homogeneous to be sold on a futures market.

Oppenheimer said his view was not that it can’t be done, but only that the company needed to understand how this market would function and how the valuation would be done.

“We are not saying yes and we are not saying no, we are saying that we are ready to understand diamond futures and to unpack it (the concept).”

This came after the Financial Times reported recently that bankers and diamond experts are to launch two initiatives in coming days to create the world’s first derivatives contracts linked to diamond prices

Oppenheimer allayed fears that synthetic diamonds would pose any threat to real gems by saying that people bought diamonds for their intrinsic value while they were aware that synthetics were produced in a factory “last week”.

“Something that is 2-3 billion years old simply has a passionate feeling to it.”

He said the idea of a diamond as a gift of love has been entrenched in society for a long time and was not something new.

“The idea of a diamond signifying a sense of permanence is a beautiful thing,” he added.

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