Are Precious Gemstones a Good Investment?
For the novice or the experienced collector, gemstones have an unmistakable charm and value that cannot be overstated. And they’re not just aesthetically pleasing. They’re also a good investment opportunity.
The current state of the economy has shown us that uncertainty leads to higher rates of risky investment options. This, in turn, has sparked renewed interest in more traditional alternatives such as natural gemstones, which have been used to store wealth for over 5,000 years.
But not everyone is a good candidate for gemstone investing. We’ve all seen headlines about con artists scamming people out of their savings by convincing them that investing in gemstones is a fast and easy way to make money.
However, for those who truly understand and appreciate gemstones, they can be an excellent investment as they have a strong track record of increasing in value over time. The truth is that finding a true “investment grade” gemstone is not easy. You need to know how to look at things like quality, certification, and provenance. This information must be provided to you, the buyer, through recognized certificates. For instance, if you’re interested in diamond invest opportunities, you need to know how to read a GIA diamond certificate. For colored gems, you’ll want to learn about certificates from laboratories such as Gübelin, GGTL, Lotus, AGL, or SSEF.
In this article, we’ll explore why people invest in gemstones and what they should consider before doing so.
“Investment Grade”
You’ll sometimes see gemstones described as “investment grade.” It’s important to understand that the term “investment grade” does not have a precise definition. It’s ambiguous and involves too many exceptions, similarly to terms like “precious” and “semiprecious.”
For instance, a gemstone can look absolutely gorgeous, have excellent grades on all Fours Cs (carat, cut, color and clarity) and a hefty price tag. Still, it’s possible that you will never be able to recoup your investment when you attempt to resell it.
In fact, the FTC takes issue with the use of this term. It’s not illegal to use it, but it’s frowned upon because it has often been misused by dishonest salespeople. If you’re planning on investing in gemstones, you should be wary of this term.
Diamonds vs Colored Gemstones
Each category of high-quality gems has investment potential. There’s a big market for perfectly polished D color diamonds that are more than five carats and don’t have inclusions visible under 10x magnification (Internally flawless – IF) or pink, red, orange, green, and blue diamonds with a deep and evenly spread single color. These gemstones are constantly smashing records in price, making it quite clear that they’re a good investment.
At the same time, we can see from data published by the Lotus laboratory that rubies, sapphires and spinels that are also more than five carats, have perfect color and cut, and a desirable provenance have been sold for very high prices at auction since the late 1980s.
Managing Cost Basis
To make money by investing in gems, you need to manage your cost basis and make sure you have a margin of safety. The single most important aspect in determining whether you’ll get a good return on investment is the price you pay for the gem. You need to be cautious and do your research.
For example, if you buy and sell emeralds, you’ll want to keep track of the emerald market, especially factors that might have a strong impact on emerald price. Right now, despite the controversy over artificial resins being used to treat them, fine untreated emeralds are still a good investment. Colombian emeralds remain the most precious, especially in large sizes, followed by premium Brazilian emeralds.
You won’t be able to buy gemstones at retail prices and make a profit. You need to look for wholesale suppliers. You’ll get the best prices from Tier 1 dealers. These are the ones who mine and cut the stones themselves. Secondary dealers are the ones that buy gems from wholesalers and resell them. The prices they offer are still comfortably below retail. And, of course, buying in bulk will get you better prices.
You can find primary and secondary dealers online. There are gem wholesalers in almost any city, and trade publications include them as well. Flea markets, pawnshops, and estate sales are all good places to look.
You’ll want to build a network of jewelers. Sometimes, you can get really good deals through them, but you need a certain level of expertise to recognize a gemstone worth buying.
You don’t have to limit yourself to cut gemstones. You can also get good ROI from rough gems, mineral specimens and jewelry.
Finding Buyers
Jewelry stores, auction houses, and online auctions are all potential buyers. They can sell the gems they buy from you at retail prices so they can afford to pay you full wholesale price. Unless you own a similar business, you won’t be able to sell your gemstones at retail prices.
Most gem dealers buy in large quantities and wait for the right buyer to come along so they can get a good ROI. They build good business relationships with retailers. Jewelers usually have a network of dealers that they call whenever they need something. In response, their dealers will send them some of their inventory, and they can choose what they want to buy – sometimes they don’t find what they’re looking for, so they don’t buy anything – and send the rest back. The industry term for this process is memo.
In such a deal, you will get the full wholesale prices because the jeweler already has an eager buyer. However, as you can see, this type of relationship takes a certain level of trust, so it will take time to build a reliable professional network.
Keep in mind that lower-priced gemstones usually get a higher markup than their higher-cost counterparts. This markup is often five times or more. When a jeweler orders stones for a customer, they tend to have a minimum price in mind since they need that to justify the work involved in ordering the stones, regardless of how much they are actually worth.
Other stones are frequently marked at three times their wholesale price. As a general rule, the more expensive the stone, the lower the markup.
This is not to say that you should only invest in the cheapest gemstones possible. For example, you may find 25 buyers for stones that cost $200 relatively easily, but you don’t want to spend your time looking for hundreds of sellers for really cheap stones. Most dealers would gladly accept a 25% markup on a $30,000 alexandrite.
