How To Play The Diamond Market

By Kevin Grewal

As the global economy recovers and the middle class widens in developing nations, the outlook for the diamond sector is likely to be promising.

The rough diamond market has already starting to rebound and prices are close to levels seen before the global financial meltdown which forced demand for diamonds and jewelry to dwindle dramatically down.  In fact, some analysts and diamond experts suggest that valuations of diamond stocks appear to be relatively cheap.

Another factor that is likely to benefit the diamond markets includes an increased willingness of investors to provide financing to diamond mining and exploration companies.   Additionally, an expected rebound in consumer spending will likely result in increased demand for jewelry and bolster revenues for diamond producers.    Most notably, demand is likely to increase in nations like China, India and Brazil as incomes start to increase and consumers demand the finer things in life.

Diamonds are a commodity which are not traded in the futures markets and are difficult to get direct exposure to.  Companies like DeBeers are a great way to gain exposure to the shiny, sought-after gems, however, it is not publicly traded.  To gain exposure and play the diamond markets, one could take a look at mining giants Rio Tinto (RTP) and BHP Billiton (BHP), which have diamond divisions.

Some ETFs to consider include:

  • the iShares S&P Global Materials (MXI), which boasts nearly 12% of its assets to BHP and another 3% to Anglo American PLC, which has a significant ownership stake in diamond giant DeBeers.  MXI closed at $57.50 on Friday.
  • the iShares MSCI Australia Index (EWA), which allocates nearly 15% of its assets to BHP and another 3% to RTP.  EWA closed at $21.28 on Friday.

As with most other commodities, the diamonds markets can be highly volatile.  Additionally, the aforementioned ETFs are an indirect way to play diamonds.  With this in mind, it is important to implement an exit strategy which triggers price points at which an upward trend could potentially be coming to an end and enable one to preserve equity.

According to the latest data at www.SmartStops.net, an upward trend in the mentioned ETFs could come to an end at the following price points: MXI at $54.34 and EWA at $20.33.  These price points fluctuate on a daily basis and updated data can be found at www.SmartStops.net

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We are a new service launched to the market in July of 2008. Our mission - to help ensure stock and etf investors stay protected in their positions at all times. see www.smartstops.net

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