With speculation over big stones getting a little out of control, and leading to some unease in the market, some are guessing the increases have been fueled by hedge funds. However, I just talked to Diapsom Commodities Management, the company that plans a special fund of big stones. The company says that it hasn’t even bought any stones yet, as its fund for million-dollar-plus diamonds has yet to launch. (It was  originally supposed to launch last summer; the new target date is May 20.) 

“If we had launched the fund when we wanted to, nine months ago, the performance would have been tremendous,” says the company’s head of advisory, Stephane Barbier de la Serre.

De la Sarre did have some interesting things to say about the current frenzy:

[The price increases] are crazy. But remember, we come from the commodity area and we have seen nickel being multiplied by 20, copper multiplied by ten. We are used to this kind of movement, which is new to the diamond area. It is probably a little excessive, but then again, it’s the market.

What’s Causing This: I think it’s fueled by the extremely fast growth of the number of billionaires in Asia and other parts of the world. I read yesterday there are 50 more billionaires in Russia.   People want a real tangible asset. If you add the rarity factor to the very big stones, it explains diamond’s performance against gold. 

How Long Will It Go On?: [The speculation] will continue as long as inflation remains a concern. Prices will fall if inflation expectations are diminished or if there is a dramatic slowing down of Asian growth. But that’s not happening yet.

 So that’s one, admittedly bullish, view. Comments welcome.

Rob Bates

JCK News Director