Diamond Derivatives Market Could Reach $200 Billion

Bankers, diamond, and exchange experts meeting in Belgium moved closer to creating derivative contracts linked to diamond prices and said the potential market for the contracts could be as much as $200 billion, Bloomberg News reports.

Charles Wyndham, founder of diamond information provider PolishedPrices.com, reportedly said the market could be between $150 billion and $200 billion.

Diamond-derivative contracts would give buyers of diamonds and investors the possibility of buying the gems at fixed prices in the future, enabling speculation on forward price movements, as occurs in derivative markets in precious metals, Bloomberg reports. About $18 billion of diamonds a year are used in jewelry, according to ABN Amro.

Polishedprices.com, which established today’s working panel, is one of two organizations looking into derivative contracts for diamonds. Rapaport Group is seeking approval from the U.S. Commodity Futures Trading Commission to start the world’s first diamond-futures contracts in September.

It may take up to a year to start offering contracts, PolishedPrices.com reportedly said. It plans to set up a smaller task force to continue today’s discussion, Bloomberg reports. There were 35 participants at today’s working panel.

The contracts would start for polished gems and would probably be a “non-physical” product, one that didn’t include the actual delivery of the gems, Bloomberg reports. The task force will need to iron out such issues as gem quality and benchmark prices.