Investing in Gemstones, Part II; A Strategy:

By Richard W. Wise, G.G.

©2009

Avoiding the Con:

There were a number of phony gemstone investment schemes in operation during the hard asset investment craze of the late 1970s and early 1980s. Until Congress put a stop to it, investors were purchasing, gems, antiques and Shaker rocking chairs as part of their IRA portfolios.

To avoid prosecution many gem investment scammers set up boiler room operations in Canada, but sold mostly to gullible U. S. investors. The pitch was simple and ingenious. To keep buyers from seeking an outside appraisal, the gems arrived in sealed packets with a microfilmed “certificate of authenticity”. Buyers were warned that breaking the seal would invalidate the certificate and negate affect potential resale.

Over the years, several victims have sought me out to appraise their purchases. In all cases, the gems were wildly overpriced stones and of a quality best described as aquarium gravel. One medical professional confided that he had bought in because the telephone salesman assured him that he (the salesman) could double his money immediately by selling the gemstones in Japan. When I asked the victim why he didn’t just suggest that the salesman get on a plane to Tokyo, he shrugged and smiled sheepishly.

Gemstone price data is very difficult to come by. Historically, the gem trade operated in almost complete secrecy. Price is based upon quality and size, but the first universally accepted diamond grading system was not in place until the 1950s and price lists only became available in the early 1980s. Colored gemstones present additional difficulties, price guides exist, but they are handicapped by the lack of a universally accepted colored gemstone grading system and price guides that do exist lack data on larger, finer gems. Most of the information for this article was patched together from numerous sources, auction records, the author’s experience and anecdotal information.

Buy the Best:

One statement that can be made categorically is that lower grade commercial quality gemstones are not viable investments. There is really no such thing as a five thousand dollar investment gem. Historically, larger finer stones have appreciated at a much higher rate than the great unwashed.

According to connoisseur and author Benjamin Zucker, in 1976 an eight carat fine Burma ruby was worth $36,000 per carat and a twenty carat fine quality Kashmir sapphire was worth $25,000 per carat. In 2007 an 8.67 carat fine Burmese ruby sold for $425,000 per carat (pictured below left). Taking that as a bench mark, the price of a fine eight carat ruby enjoyed a 5.4% annual increase over the past thirty years. Kashmir sapphire has enjoyed a similar escalation in value. I recall two twenty carat plus Kashmir gems that sold at Sotheby’s in 1981 for $25,000 per carat. The current record holder, a 22.66 carat Kashmir, sold for $135,000 per carat in 2007 an increase of 4.5% a year (pictured above right). An eight carat Burma ruby is significantly rarer than a large Burma sapphire and in this comparison; the higher degree of rarity appears to be reflected in the average percentage increase.

Emerald is another matter: In 1976 Zucker notes a price of $6,000 per carat for a one carat gem Colombian emerald. According to National Gemstone, emerald prices peaked in 1995 at about $8,000 per carat. The discovery, in 1994 of the massive La Pita emerald deposit, brought a flood of finer grade Colombian emerald into the international market. Emerald fell precipitously in price in 1996, and prices remained almost static for ten years. Emerald regained its previous market high in 2005 and has appreciated approximately 20% since.

Diamonds are an interesting case study: In 1968 a one carat D Flawless round brilliant sold for $1,400.00 wholesale. By 1976 that same diamond was worth $6,500.00. As the glamor stone of the investment craze, the D Flawless had its ups and downs in the decade the followed, it toyed with $70,000.00 in 1980, but even so, today, that same gem sells for $19,400.00 increasing a hefty 7.6% per annum (provided you didn’t buy in 1980). By contrast a relatively mundane one carat J VVS went from $550 in 1968 and 1,500 in 1976 is worth $4,500 today an increase of 5.4% per annum.

Diamonds, however, operate in a controlled market. The steep rise in diamond prices is due to correspondingly steep rises in the price the DeBeers diamond cartel charges for rough diamonds. According to Gem Market News (GMN), between 1968 and 2003, De Beers increased rough prices by 1200%.

Gem prices have remained relatively strong in the current downturn. GemVal, a website that offers gemstone appraisals publishes a Gem Value Index (GVA) (graph at left) which reflects the aggregate price of gemstones in the market. The GVA The index which started in July of 2005 (100%), peaked 126.8% in April of 2008 and currently stands at 123% showing a 3.8% dip over the past year.

Liquidity:

As indicated in Part I, the auction market is today the default source of liquidity. How does the investor obtain the best possible price upon liquidation? Strategically speaking when it comes time to sell, the investor wants to dazzle the auction house. It is wise, therefore, to purchase larger, finer, rarer gemstones that will excite the experts who control the auctions. These are the professionals who create the pre-sale buzz. If the people at the auction house are excited you can bet that that excitement will be communicated to potential buyers and translate into a higher price and a better yield.

Gems such as the one carat J VVS diamond are readily available in the wholesale market and will receive very little attention at auction. With the buyer/seller premium hovering at 40%, chances are it would sell well below wholesale. At 50% of wholesale, the annual long term appreciation would be cut to 2.7%. If the investor has purchased the stone in the last ten years, he will probably take a substantial loss.

The D Flawless would have a much better chance of selling above its wholesale price, but even the best one carat colorless diamond in the world is far from rare and readily available on the wholesale market. The one carat D Flawless has done well over the past thirty to forty years, but that is a long horizon. Over the near term, it’s price has remained static, hardly moving at all for the eight years between 1996 and 2004 while prices for both ruby and sapphire doubled.

There are many rare gemstones, but with a few notable exceptions, the investor is wise to stick to brand names such as ruby, emerald and sapphire, type II and colored diamonds. Gems of this degree of rarity generate both excitement and desire on the part of both wholesale and retail auction buyers. Just prior to the record setting ruby price in 2006 (ruby pictured above left), quoted prices in Bangkok for ruby of that size and quality were somewhere in the $300,000 per carat range. At that time there were no actual gems of that quality available for sale. Two possible nominees for the list might be Paraiba tourmaline and natural pearls. Other stones, like internet start-up companies, may provide more potential for appreciation, but at a much greater risk.

The investor thinking about liquidation should consider the timing. Timing is important. Auction house divide gems and jewelry into categories; “important”, “very important” and “magnificent” are the three categories dearest to the investor’s heart. Important auctions attract important buyers and the larger, rarer and finer the stone, the more prominent will be its place in the auction catalog. The date is also important: Auctions held close to the Christmas holidays bring in high-end retail buyers.

Next Installment: The New Precious Gems and Buying for Rarity, The Breakpoint:

Rarity should play a role in the investment decision. Beauty drives demand, but rarity drives price. It’s not enough that it be a fine gem, it must be a fine gem of a rare size. At what point do size and rarity coalesce? I’ve chosen the term breakpoint to describe the size where rarity drives per carat prices dramatically higher. Next installment I will discuss the breakpoint and make some suggestions as to which of the "new" precious stones might make good investments. Stay tuned!

Basel World 2009

By Marisa Zachovay

Basel World has been a confirmation for many in the colored gemstone industry that the global recession is a reality and it will be here for a while. The luxury market is not immune and attendance at the show was definitely down, though no one is willing to give any numbers just yet. In past years, finding a table or corner to eat lunch just outside Hall 1 was virtually impossible unless you had a “late” lunch. This year, there was a plenty of room although it was a bit cold to be outside, thank you very much. One exhibitor noted he was able to read the daily fair newspaper completely from cover to cover. Definitely less traffic!

The window shoppers stayed home. The US buying contingent was certainly fewer in numbers. But the visitors that did come were buying. And they were bargaining! Buyers had the upper hand and were milking it for all they could. Some colored stone dealers commented that their private customers were also missing. Finished jewelry was reported to be moving better than loose gemstones.

In colored gemstones, there were the usual goodies to be expected at the show. Hot pink spinels, neon tourmalines, and luscious emeralds were all available in the best qualities possible. An interesting suite of rough emerald in graduating sizes and with graduating color within the rough from green to colorless was available for a creative designer to play with.

Overall the mood was quiet with most exhibitors having arrived with low expectations and leaving with satisfactory results although of course “not the same as the past few years.” Now that we are over the “deer caught in the headlights” freeze from last fall, the industry is waking up and realizing it will have to reinvent itself and discover new markets and strategies for the future.

Bio: Marisa Zachovay

It is a pleasure to introduce Marisa Zachovay to GemWise readers. Ms Zachovay is a trained goldsmith, gemologist and world traveler. She published an article in German and subsequently in English in the Extra Lapis journal, Emerald – What is the value of emeralds. She also wrote for International News in Gems & Gemology about chocolate pearls. Ms. Zachovay has traveled to countries such as Madagascar and Colombia as an instructor and to give seminars. She is a member of the Gem & Mineral Council of the Natural History Museum in Los Angeles, California and a Certified Gemologist with AGS.

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

Investing In Gemstones, Part I: The Market

by Richard W. Wise, G.G.
© 2009


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)

The Problem:

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