Research Of Investment In Gem Stone Diamonds Under Monopoly And On Free Market: Could Diamond Act As A Hedge?

Diamonds, similar with gold have a long history of being attractive as a symbol of wealth and luxury. The last five years have seen the most important changes to the industry that have taken place over the last hundred years. There are number of key developments which have taken place in recent years which will be examined within this paper. These developments have not been examined together in an academic paper before and thus this paper aims to provide new insights into the industry and examine the impact of these changes.This thesis illustrates diamond market structure under monopoly and in a free market; provides information about major mining locations, key mining companies, diamond exchange traded funds. Empirical analysis using game theory model has been included in this paper to understand the factors causing changes in diamond prices. Example of game theory models(‘Oligopoly’, ‘Cheating firm’ and ‘Prisoner’s dilemma’) were used to explain the changes in the structure of the diamond market, and its impacts on changes in diamond prices. This paper also seeks to answer a practical question of whether diamond can act as a hedge against stock markets and other commodities in an investment portfolio. This was done using correlation analysis. Changes of different investments during the period 2010-2015 were recorded and analysed using comparative analysis between investments in polished diamonds and investment through the mining companies’ stocks.Also this paper helps to understand strengths, weaknesses, opportunities and threats of natural and synthetic diamond gem stone industry, explained by SWOT analysis. One of the biggest threats to natural diamonds is a growing synthetic diamond market. Currently the Chinese market shows the potential to develop both synthetic and natural diamond markets.