Sunday, March 22, 2009
Investing In Gemstones, Part I: The Market
by Richard W. Wise, G.G.
Bye, Bye Bling:
Perhaps it’s the tenor of the times. Increasingly I find myself fielding questions about gems as an investment. With government printing presses working 24/7, many people are concerned that deficit spending, coupled with Government stimulation of the credit markets in the U. S., Europe, China and Japan, will eventually lead to hyperinflation. With stocks, bonds and real estate in the tank and currencies at risk, people are thrashing about looking to find a safe financial haven. In uncertain times, investors turn increasingly to hard assets. Luxury per se is out, but investment is definitely in. (pictured above left a 1.01 vivid pink diamond from the 2008 Argyle tender)
Stocks and bonds trade in an orderly market. One share of General Electric common stock is just like another. Stock Exchanges guarantee that their members can trade stocks at the going price anytime the exchange is open. This gives stocks the advantage of liquidity. Stocks and bonds trade at established prices and these prices are posted and available to the public. Exchanges operate on volume so the commission on any given trade is very low.
To say that gemstones do not trade in an orderly market is something of an understatement. There are no exchanges to facilitate trading. There are gemstone price lists, but each sapphire is a unique natural creation and so, therefore, is its price. Gems normally pass through several sets of hands before reaching the collector and the price spread between wholesale and retail can be as broad as the Grand Canyon.
Liquidity and the Auction Market:
A decade ago auctions were controlled by dealers; fully 90% of gems and jewelry sold at auction was purchased by dealers. The buyer profile, as I pointed out in my book, Secrets Of The Gem Trade, had begun to change in the early days of the new century. Evidence suggests that this trend has accelerated. As of 2003, according to Gloria Lieberman, Chairman of the Jewelry Department at Skinner’s Auction House in Boston, dealer purchases had shrunk to 60% with consumers making up the other 40% of buyers. The trend has accelerated in the last few years. “Today,” says Lieberman, “the buyers are 60% retail.”
Gary Schuler, Director of Jewelery at Sotheby’s sees a similar trend. He notes that between 65--70% of his buyers are private individuals. When it comes to finer stones the dollars split about 50/50, he says. Why is this important? Because it opens the market, giving consumers and investors direct access to the resale market and thus a degree of liquidity that did not exist in the past.
That is the upside. The downside is that access comes at a cost. Auction houses typically charge sellers between 17-20% of the hammer price and buyers pay a similar percentage. Still, it is all about the price. Both dealers and retail clients purchase gems and jewelry at auction and the market continues to function.
Schuler believes that jewelry and gemstones are a store of value but cautions: “I do not believe in jewelry as an investment” and admits that ‘sophisticated private individuals’ do compete with dealers at Sotheby’s.” “Fine, loose gemstones still go to the trade” says Lieberman; however, a fine gem mounted in a Tiffany setting may go retail. “With the internet, it is easier for privates to compare prices,” Lieberman says.
Both Schuler and Lieberman see a softening of prices in some areas of the market. Colorless diamonds, a market which has become highly speculative over the past few years, has suffered the most according to Schuler. He has seen some softening in colored diamonds but almost none in high quality colored gemstones. Stephen Hofer, author of Collecting and Classifying Coloured Diamonds disagrees; he sees continued strength in prices for very fine colored diamonds.
Can gems be purchased as an investment? “Absolutely” says David Walker, CEO of Shreve Crump and Low, the venerable Boston Jeweler. “There are opportunities in a soft market; the important thing is the time horizon.” However Walker sees hyperinflation around the corner. Asked about a time frame, he suggests buying and holding for a minimum of five years. “You need a knowledgeable guide,” says Walker. Gemstones exist in a complicated market - it is no place for the uninitiated.
Next Installment: An Investor’s Strategy: Stay tuned.
Thinking of investing or just trying to find a beautiful gemstone. Want to know more about it? Consider the connoisseur's guide. 120 carefully selected photographs showing examples of the highest quality gems to educate the eye, including the Rockefeller Sapphire and many more of the world's most famous gems. Consider my book: Secrets Of The Gem Trade, The Connoisseur's Guide To Precious Gemstones.
“Wise is a renowned author... He’s done a marvelous job of this first book, monumental work, a tour de force...My recommendation: Buy this book”.
Charles Lewton-Brain, Orchid
whether you like to know what the best colour is in Tanzanite, or how to grade a Diamond, you will find it in this book. No other book I read before dealt with this topic is such detail as Richard Wise's masterpiece."
A. Van Acker, FGA Amazon June 2005
"Secrets Of The Gem Trade: The Connoisseurs Guide To Precious Gemstones by Richard W. Wise is an impressive new reference for dedicated dealers and collectors of gems, gemstones, and ... pearls. Introducing and descriptively exploring each and every gem covered in the easy-to-use reference, Secrets Of The Gem Trade contains an illustrated summary of each stone inclusive of its history and general information, hue and tone, saturation, which may be noticed as the finest, an understanding of the particular gems rarity, and the caution for synthetics and how to depict them, however depending upon the stone there may be description of clarity, color fading, multi-color effect, etc. Secrets Of The Gem Trade is very highly recommended to anyone interested in gemology as a superbly organized, authoritative, comprehensive, and easy-to-follow reference."
Midwest Book Review April 2006
Only $39.95 in paperback. Read a couple of chapters online an order: We recently discovered about a dozen copies of the out of print hardcover: $79.95 signed by the author www.secretsofthegemtrade.com.
Buy it on Amazon: www.amazon.com