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.

ETFtrends’ Tom Lydon spoke with CNBC’s Street Signs on Monday about how a diamond ETF could affect the market. [Are Diamonds the Next Gold?]

Last month, news reports surfaced that ETF provider IndexIQ had filed with the Securities and Exchange Commission to launch a physically backed diamond fund. [Investors May Soon Access a Diamond ETF]

“Diamond is the last uncommoditized commodity, and so it’s drawing in many organizations,” said Edahn Golan, the editor in chief of IDEX Online, in a recent New York Times article. “I assume that by the end of this year there will be a bunch of [funds]out.”

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.

In the diamond market, the Polished Prices index has risen 56% since its inception in 2003, according to the NY Times article. Gold prices entered 2003 around $350 an ounce, so the precious metal has rallied about 370% to its current price of $1,650 an ounce.

De Beers controls roughly 40% of the diamond market, while uniform pricing has been notoriously difficult. However, several firms are trying to develop standardized indices of diamond prices.

Unlike most commodities, there is no futures market for diamonds. [Why Isn’t There an ETF for Diamonds?]

The proposed IndexIQ ETF would be backed by physical diamonds stored in Antwerp.

Diamond performance

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