Investing in Precious Gems: What You Need to Know
If you feel the way I do about 2022 so far, then you’ll agree we live in very unpredictable times. Barely out of the COVID crisis and ensuing lockdowns, we now face high gas prices, general inflation, crashing stock markets, and shortages in basic foods such as cooking oil and flour (this is especially true in Europe). My friend Doreen in Nairobi tells me her food prices have actually doubled this year, and there’s barely time to think about anything besides making just the basic ends meet. It’s hard not to feel unsettled.
So it might come as a surprise to you that I have done nothing but buy gems this year. I noticed the shift last fall already, and together with many other Tucson buyers this spring, I went bullish. Now it’s July and my Bangkok contacts are still telling me that everyone’s buying. My natural colored diamond dealer, who goes by the nickname Ghandi (yep) says his safety net is in his safe, not in his bank account. Most people in my trade are buying more than selling right now; one vendor named David even told me that while they’ve been in the sapphire trade for 4 decades, they’ve only now started to buy and stash stuff away. He said he only wished they had started sooner.
When I first started in this industry, I was told that the health of a gemstone business can be measured in this way: not necessarily by how much one has in inventory, but by how comfortable one is in holding on to it. If you have low liquidity and can keep a gem purchase for only a few days before you have to sell, this is really bad; if you can wait a year or more, this is excellent. So, while the world may end next year, and my retirement account may end up retiring itself at zero, I will still have my Paraiba tourmaline.
Gemstone investing is not for the uninitiated though, and I have a sad story to tell to show this. Back when I was helping my Indian friend Dino sort his emeralds in one of the street facing exchanges in the diamond district – it might have been 2010 - an elderly lady came up to his booth with a tray of gemstones that she had, as she said, invested in over the years. All were bought from JTV on special offers that said 80% off retail price or something like that. You might guess what’s coming next: they were completely worthless. I mean, you would in any case not want to sell off an entire collection bought at retail to a NY wholesaler, especially for cash, as you will get lowballed. But that said, labradorite, moonstone and other similar gems just don’t accrue in value. Dino felt so bad for the lady that he just told her he wasn’t in the market to buy at that time. He couldn’t bring himself to be honest with her.
And even if you have a nice collection of items, they cannot easily be liquidated the way stocks can be sold. When people would offer gems to Dino and ask their value, he’d always say: how much time do you have? If you can wait for the right buyer, you can sell for a good price; if you are in a hurry, then you will have to take a low cash offer.
Another anecdote: About 6 years ago, I made a Brazilian Paraiba pendant for a client, a 2 carat oval center, 2 matching pieces at 5.5mm, two at 4mm, and diamond melee. It came to a total of about 20K if I remember correctly. (For privacy reasons, I will not show a photo of this pendant here). The buyer had asked me initially if it was an investment piece and I said yes. So after 3 months she wanted to sell it back to me. I said that would make no sense for me now, but if she waited two years I most likely would. She grew impatient, asked me how to sell it now, and I said if she needed to liquidate she could go to an auction house but it would cost her 20% or more in commissions, and I didn’t want her to lose money by rushing. She tried but she was turned down. I don’t know if she ever sold it or not, but I would buy it back now at a higher price and I wouldn’t think twice about it. (I am not sure what I would offer because I would need to see the details again but matched pairs over 5mm now start at 10K/ct if you can find them).
So, for a retail buyer to invest in a gemstone, they have to play the long game, minimally a year I would say, normally longer. This year one of my Paraiba vendors started to buy back from his clients at the same price or a slight markup, so he could offer the goods back out to others. And that’s vendor prices, not even retail: retail is also tougher to sell to, but at the right price one can speed up the sale.
Ideally, for a nice investment you want to wait over 10 years, and then you can really get somewhere with the price increase, even if you then sell off quickly.
But beware. Most gems are not worth investing in, and you have to watch for the hype like gems featured in advertisements or elsewhere on TV channels. Here are a few pointers if you are seriously thinking of investing in gems:
- Size matters, and yet the size can be small. If you are buying a natural pink diamond from Argyle, as little as a 20 pointer can be a huge investment. I’m not in the diamond trade, so in gemstones I’d say that a half carat cobalt spinel from Luc Yen with the appropriate paperwork can be a “big” investment. But an unheated blue sapphire from Sri Lanka will have to be bigger than half a carat to be an investment gem. As a good rule of thumb for the smaller investor, try to get over a carat. Even if it costs more initially than a stone just under a carat, it’s still the better choice.
- Beware of hype. Tanzanite would be my go-to example here. While it is a single origin stone (meaning it comes from only one location), there’s plenty of it in the ground. To correctly assess hype, read GIA or other trade articles, not stuff written for retail. Remember that sellers like me rely on correct information or our business goes belly up. We get our information from the trade, not from articles published for the general public. And you have plenty of access to trade publications! Most gemstone laboratories have a nice online article database to peruse.
- Related to hype, beware of trends. In my opinion (not necessarily shared by everyone), Padparadscha sapphire is a trend. Celebrities with big wallets buy a couple of big stones that are truly perfect and possibly well worth their cost, and then everyone else wants one. But top of the line Padparadschas are super expensive, and the rest not worth it. I have written a blog entry on this, so I am not going to repeat it here, just follow this link.
- Go with your eye and buy only what really (REALLY) attracts you. If it isn’t pretty, it isn’t worth having. For color (the first C in my view) you don’t need an expert. It’s not rocket science. Even a gemstone innocent can pick the best gem out of a batch by simply grabbing what they like. While there is variability in taste, it’s not as subjective as you think. The biology of the human visual system is more or less the same for everyone, unless you are color blind; and we react differently to different colors and saturation. We like blues and greens (because we survive on water and vegetation), whereas browns, oranges, yellows, and muted colors generally, do not attract the eye as much. Muddy stones like 99% of Alexandrite are hard to sell for me, which means they are hard to resell for you.
- Origin matters mostly when it makes a difference in how a gemstone looks. I’m inclined to say it matters only when it makes a difference in how a gemstone looks, but I want to hedge a little here. A good quality Kashmir sapphire is well liked in the trade and sapphire vendors will invest in them despite the premium, while at the same time telling you that they might prefer a Ceylon sapphire because it’s prettier and cheaper. But when you compare Mozambique and Brazilian Paraiba, the Brazilian is preferred because, on the whole, it looks nicer and more vibrant. Between a Mozambique and a Burma ruby I would buy whichever is nicer, same with sapphire from say Sri Lanka or Madagascar. But between a Russian and a Brazilian alexandrite, assuming they both look equally nice (and they MUST look nice), I might try to get the Russian stone if I can afford it.
- Don’t overstretch yourself financially. If you can’t afford the Russian alexandrite and the Brazilian looks beautiful, then get the Brazilian stone, not the Russian. Your investments should stay within your comfort level or you will at some point feel pressured to sell, and then you can get messed up. Just like with the stock market, if the market is volatile, you have to have time. Otherwise, just get a CD.
- Treatment is important to price but whether or not a gemstone treatment lasts might matter more. So the reason you might prefer an unoiled Russian emerald is because the more an emerald is oiled, the higher the chance that when the oil dries out after a decade, the stone cracks. Therefore, you want a clean enough specimen that needs very little treatment. (Cedar oil, incidentally, is basically no longer used in the emerald business, so your report will say ‘Modern’ treatment or if it’s from GIA, it will not make a distinction between types of clarity enhancement). In other cases, like sapphire, treatment should just be considered in the price. Untreated sapphires cost more. But also understand that when it comes to tourmaline and aquamarine for example, which are heated at lower temperatures, the lab methodologies for testing are limited and not fool proof. This is one reason why when I buy Paraiba tourmaline I am not that concerned about heat treatment but I care a great deal about any other clarity enhancement (which, I repeat, may not last and then the gem has low overall stability, even low color stability at times because when the oil dries the gem will show ugly white spots).
- When you spend enough money on the gem, get it certified. Or buy subject to cert where you tell the seller that if he or she produces the certificate that says what you expect (e.g., origin Brazil), then you commit to the purchase, but not before. That’s standard procedure though remember that a good cert like AGL will be over $250 and a Gubelin report may be up to about $800, depending on the size of the stone. This means it makes absolutely no sense to certify a stone that cost you $500. Also don’t just ask for any old cert. Anyone can make a laminated card. Look up the cert you are offered and see if that’s from a reliable laboratory. A small lab may not have enough of a gemstone database to make very good determinations about origin, or alternatively, they may work in favor of the seller because that’s where they make most of their money - some overseas labs have that reputation. If you buy from a reputable US seller, or an AGTA member (yes, I am one, but that’s not why I’m saying that), then you have better return options, you can track the money, and they are bound by US law (so I can’t sell you a sapphire that’s really an amethyst; it’s just not allowed and if I’m found out I can lose my buyers). A US based company cannot easily just go “belly up” and start with a new name after being found out to be dishonest.
- And lastly, beware of the “deal”. Every gemstone dealer knows their prices. They’re not dumb. If you cannot buy quantity, then be prepared to pay a little more and get a “vetted” piece. If you buy stocks or options as a private buyer (not a bank), you have to pay more also, and a brokerage fee in addition. I used to work on a trading floor and I have my series 7, so I’ve seen it happen. Our “private investment” desk did flourish, even though private investors had to expect less of a return than the bank’s proprietary brokers could achieve.
There’s much more to be said here but blogs are supposed to be one page and I’ve already gone over.
I will wrap up with what you might consider the most important question here. What does yours truly invest in? And what do other seasoned gemstone dealers invest in? This depends a little on access and expertise of course. On my list is Brazilian Paraiba, even greenish ones (because they are neon and in the end I want neon), some very good quality Mozambique Paraiba if I can get matched pairs or a bigger piece. I also buy fine quality spinel: cobalt (even good quality Sri Lankan material), Burma spinel, Mahenge spinel, Vietnamese purple and lavender spinel, red beryl and sometimes benitoite (though mostly for direct resale; it’s worth investing in but it’s just not my favorite stone). I own an exceptionally fine kornerupine, and I would own a very fine quality grandidierite if I could, though I don’t expect either of those to accrue a lot in value. I also buy low or no oil emeralds. I prefer vibrance, not overly dark, though the occasional minty tone in a Russian emerald would draw me in because it has some Paraiba like qualities in terms of color.
Other vendors I know buy blue sapphires, vibrant colors only, some fine quality rubies or alexandrites though most rubies and most alex’s do not resell easily and are not as beautiful as one would hope. I will surmise that most gem dealers are willing to sell the lower quality materials quickly for a good price, which means they don’t fully trust the stone (probably because it’s not always that pretty). I’ve seen investment in Padparadscha go down because so few labs now certify a sapphire as a true pad, and some labs, like AGL, haven even reversed themselves on gems that they previously certed as pads. That signals a big “no no” to me. The same has been the case with origin in ruby and sapphire. A few years ago many Madagascar sapphires were certed as Sri Lanka, now that’s changing because of the better database availability. So for me, I’d pay the same price for either origin, not more. And should my wallet ever be big enough for a Kashmir, I would expect 2 or even 3 certs -- one of them Gubelin as they are the strictest in their standard, and price varies drastically if it’s not Kashmir.
Ok enough said, but let me add this note just in case: if you have questions about any other gems and investments I haven’t mentioned here, please ask. If I don’t know the answer, and I may not, I will try to point you in the right direction with literature or send you to another vendor that is better equipped to handle your questions or request. I’m a researcher by trade, and what I have on offer is at your disposal.