Interesting story on NPR about the diamond industry and futures markets—similar to what was done wit

Longacre · November 5, 2007 10:22PM

I was listening to a story on NPR last night. I put a link to the full text of the story below. The story was about a diamond dealer, Martin Rapaport, who is trying to create a commodities/futures market for diamonds, so that they can be traded more easily. It is an interesting concept, and his idea has a lot of similarities to the coin market in the 1980’s. Of course, we all know that the late 1980’s was when the TPGs started and essentially created a sight-unseen trading market for coins. In effect, the TPGs commoditized the coin market, and on the surface, every particular date of a certain series of coin in the same grade is treated exactly the same.

Regarding diamonds, although people like to think that every diamond is unique, Rapaport seems to want to move the market toward buying and selling diamonds as fungible goods, rather than individual items.

Here are some selected quotes, which you could also apply to the coin world:

“Rapaport wants to start a diamond futures exchange. That is, a way for investors to trade diamonds like a commodity. Buying bags of gems the same way they do bars of gold or sacks of wheat. He tried it once before in the eighties but a collapsing diamond market doomed the project. Now he's trying again. So are a couple of others. But the traditional diamond business is skeptical.”

Rapaport stated, “We can put diamonds on the table here and bring in experts and they're not going to be able to tell the difference between the two diamonds.”

“Some dealers argue Rapaport's plan would make it too easy to manipulate prices. And there's the unspoken worry that knowing a diamond's exact value could make it hard for dealers to make money. Rapaport says a futures exchange could actually end up saving dealers money.”

“Still, even if he can convince the skeptical to get involved, it could take years to create an exchange. For now, Rapaport's running monthly online auctions. Trying to get a baseline price on which to fix his futures.”

“Back in the seventies, Rapaport was kicked out of the Diamond Dealers Club for creating a price sheet for the gems. In those days, two dealers simply sat down and negotiated a price.”

**********
Questions:
(1) Given the 20+ years of history that we have in the coin world and the established prices with auctions, do you think it is time for a coin futures market? Do we essentially have one today?

(2) I believe that diamonds today are certified, but they are not slabbed. I see that CU owns a company called GCAL, which certifies gemstones. If this commodities market for diamonds gets established, will there be a market for slabbed diamonds?

As an aside, when Longacre was shopping for a diamond engagement ring for Mrs. L, I stopped by a local jewelry store. Luckily, the jeweler’s diamond merchant walked in at the same time. He was a Hasidic Jewish gentleman. The jeweler, because I knew him, asked the merchant to let me take a look at all of the diamonds he was carrying. Well this Hasidic guy pulls out this leather pouch out of his coat (which was chained to his body, and I dared not ask where), which was about a foot long by six inches wide. In the pouch were easily a few hundred little envelopes filled with diamonds. There had to be a few million dollars worth that this guy was carrying. I took a look at a few, and being the clumsy guy that I am, I squeezed the tweezers too hard when I was looking at one with a loupe and the diamond shot out of the tweezers across the room. Now Longacre usually doesn’t move too quickly, but on that day I scurried across that jewelry store and made sure I picked up that little diamond off the carpet.

Link to full article

fastrudy · November 5, 2007 10:49PM

Interesting, but there remains one entity that must be convinced in order for this to fly.
Can you spell d-e-B-e-e-r-s?
A monopoly that sets the prices of diamonds is a BIG stumbling block.

The guy with the best hand NEVER asks for a new deal.

Longacre · November 6, 2007 12:00AM

It looks like CU already created a certified diamond exchange last week:

Press Release
GCAL Launches Certified Diamond Exchange (CDE)
New York (October 28, 2007) - Gem Certification and Assurance Lab (GCAL) announces the launch of Certified Diamond Exchange (CDE), a free online diamond exchange where JBT-listed retailers, wholesalers and manufacturers can buy, sell and trade their inventory of GCAL certified diamonds.

Completely free to the user, CDE's aim is to provide an accessible online source of GCAL certified diamonds. Unlike any other online diamond exchange, CDE has a critical layer of protection because each diamond is backed by GCAL's Zero Tolerance 4Cs Consumer Guarantee. This guarantee assures buyers that every diamond listed on the site was independently graded and verified and is protected by a money-back guarantee.

CDE intends to be one of the most heavily marketed diamond trading sites and is backed by the resources of Collectors Universe, the parent company of GCAL and CDE. Inventory will be aggressively marketed directly to the best buyers in the marketplace through an advertising campaign in multiple trade publications, online announcements and repetitive direct mail to over 30,000 buyers, sellers and manufacturers in the diamond trade. Sellers can submit diamond inventory to GCAL for certification and then have the diamonds marketed through CDE, all for the price of the certificate with no other fees or commissions.

Logging on requires registration at www.cdediamonds.com, a quick and simple process. CDE is limited to members of the trade only and will not be available to the consumer.

"GCAL has always been at the forefront of utilizing new technologies to create the most consistent and accurate atmosphere in which the diamonds are certified," says Donald A. Palmieri, President of GCAL. "This focus on technology has enabled us to offer such exclusive features as Gemprint, direct assessment light performance, the Gemfacts interactive Digital Certificate, and many other value added benefits to our customers. CDE will be no different with regard to GCAL's focus on technology and value added services. We will be constantly looking for ways to improve the site, its efficiency, and the experience of both the buyer and seller."

About Gem Certification and Assurance Lab

Gem Certification & Assurance Lab (GCAL) is a subsidiary of Collectors Universe, Inc., a NASDAQ Global Markets traded company (CLCT NASDAQ listed). GCAL provides guaranteed diamond certification with bundled services including Gemprint and direct light performance analysis as well as SourceVeritas and Ideal Cut certificates (www.gemfacts.com). GCAL is the Official Diamond Laboratory of the International Colored Gemstone Association for North America, the JCK Shows, Couture, and the JA Shows.

About Collectors Universe

Collectors Universe, Inc. is a leading provider of value added services to the high-value collectibles, diamond and gemstone markets. The Company authenticates and grades collectible coins, sports, cards, autographs, stamps, currency, diamonds and colored gemstones. The Company also compiles and publishes authoritative information about United States and world coins, collectible sports cards and sports memorabilia, collectible stamps, diamonds and gemstones. This information is accessible to collectors and dealers at the Company's Web site, www.collectors.com, and is also published in print.

Contact:
Don Palmieri
GCAL
212-869-8985
dap@gemfacts.com

Coinosaurus · November 6, 2007 1:26AM

<< <i>Interesting, but there remains one entity that must be convinced in order for this to fly.
Can you spell d-e-B-e-e-r-s?
A monopoly that sets the prices of diamonds is a BIG stumbling block.

The guy with the best hand NEVER asks for a new deal. >>

I've never understood this. Exactly how can anyone regulate the secondary market?

RichieURich · November 6, 2007 1:27AM

"I'm not Rapaport".

Thought you would appreciate this, Longacre!

Coxe · November 6, 2007 1:36AM

Anyone remember when Teletrade ran certified diamond auctions? They went for a little while, near the end of the telephone and modem bidding only days, before the Greg Manning sale. I suspect they didn't market enough to the right people and lots went unbid too often or something.

fastrudy · November 6, 2007 2:04AM

DeBeers manipulates the price of diamonds by controlling the quality and number and wholesale price of their stockpile. They only release what they want to release. It would be like the mint making 10,000 TJ spouses and releasing only 100 of them. When the price rises in the after market, they adjust price and release another 100. It is a British Corporation and does not violate any US anti-monopoly laws. But they are a monopoly. A while back, some Canadian diamond mine wanted to sell Canadian diamonds to wholesalers. deBeers got the word out that if any wholesaler buys from Canada, they would never do business with deBeers again. deBeers also initiated a propaganda war claiming that the Canadian diamonds were 'inferior quality'. The combination of the two worked splendidly to preserve their monopoly. deBeers is to diamonds what the Hunt brothers wanted to be for silver.

Coinosaurus · November 6, 2007 2:23AM

This still makes no sense. How much control does the US Mint have over the secondary market? Very little.

There are billions of diamonds in the hands of the general public. There should be a thriving, Internet driven secondary market, and yet for some reason there is not

Coxe · November 6, 2007 2:35AM

Diamonds are not rare. A well-cut, large, flawless diamond is. Diamonds are very slow to recycle which allows DeBeers to play the public. Most people want a new stone and old ones stay set for long periods of time. The diamond is an extreme in terms of hardness, structure, perhaps beauty but not rarity. They can always find and make many, many more according to the demand.

Bear · November 6, 2007 3:35AM

By controlling the price and supply, deBeers is holding

between 1-2 billion dollars worth of raw and cut diamonds

in there various vaults.

It aint gonna happen, until PCGS begins to slab diamonds with
the grade, cut, weight in Carats, clarity and cut on the label with a guarantee.

Coxe · November 6, 2007 4:35AM

<< <i>By controlling the price and supply, deBeers is holding

between 1-2 billion dollars worth of raw and cut diamonds

in there various vaults.

It aint gonna happen, until PCGS begins to slab diamonds with
the grade, cut, weight in Carats, clarity and cut on the label with a guarantee. >>

There already is a flourishing diamond certifcation industry with a product (report) that puts coin slabs to shame. However, it was shaken not long ago by discovered corruption at one service.

I wouldn't think it advisable for CU to start up a diamond certification service.......but to buy or merge with an existing one like GIA if they could.

Unknown · November 6, 2007 5:09AM

This content has been removed.

fastrudy · November 6, 2007 5:43AM

deBeers update:

They bought that Canadian mine. It must be great to own a monopoly!!

SanctionII · November 6, 2007 5:44AM

My experience with diamonds is limited to buying some for Mrs. SanctionII. I understand that diamonds are not rare, that the new diamonds are being mined everyday, that DeBeers has a huge inventory of diamonds, that DeBeers controls the flow of diamonds into the market place and that DeBeers creates the impression of the public that diamonds are rare and valuable.

Psychology has a lot to do with the price of diamonds in the market and that the price of diamonds can be volatile based upon perception and whim (sort of like fashion).

A great fictional read about diamonds and psychology's effect on the diamond market is Arthur C. Clarke's novel 2010 (the first sequel to his book 2001: A Space Oddessy). The notion floated in the book is that the core of Jupiter is a huge diamond (which planetologists have theorized in scholarly papers). When the intelligence behind the monolith ingites Jupiter to turn it into a mini sun, the explosion that ignites Jupiter destroys the diamond core of the planets and spews diamond chunks the size of Mt. Everest into the solar system. As this happens and the reports of same are received by earth, word of the existence of mountain sized diamonds in the solar system causes havoc in the diamond markets on earth and people struggle to come to grips with the new reality. I liked how the book made reference to the Beatle's Song "Lucy In The Sky With Diamonds".

Now you may wonder what this reply has to do with coins. Well,........ nothing. But since Longacre posted a thread about the diamond market, I thought I would Chip

in with my two cents worth.

roadrunner · November 6, 2007 8:34AM

This is similar to asking the current leading TPG's if they would like stickers on their coins? Easy answer.

roadrunner

Interesting story on NPR about the diamond industry and futures markets—similar to what was done wit

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