As reported by ETF Trends (among others), diamonds could follow precious metals such as gold to be “commoditized” by the introduction of exchange traded funds based on this obscure market if regulators approve the products.

An ETF could be diamonds’ best friend or their worst enemy, based on your perspective.

Last month,  ETF provider IndexIQ  filed with the Securities and Exchange Commission to launch a physically backed diamond fund.

However, there are many challenges involved with launching diamond ETFs. Unlike gold, the gems are not uniform. There are many different types of diamonds, based on size, quality and other factors. And, unlike most commodities, there is no futures market for diamonds. Up-to-date diamond pricing is very inefficient, and those seeking to receive a more accurate market price on diamonds will have to subscribe to reputable sources.

A diamond ETF would most likely be backed by physical holdings, similar to the most prominent precious metals ETFs. DeBeers, the world’s largest diamond supplier, has received requests to back an ETF vehicle, but nothing has come of it.

Some advisors are already advising caution on a diamond ETF, even though it’s not clear whether such products will gain regulatory clearance. “Stay away until you know exactly how it works, and can be sure it’s acting like you think it will,” said Ron Rowland at Capital Cities Asset Management. It’s going to be a difficult market to create.”