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“Investment grade” is a dirty term. While not illegal, the US

Federal Trade Commission frowns on its use for the same
reason they frown on “precious” and “semiprecious.” These Products and
terms hold no meaning. Not only does the term investment Services
grade have no clear meaning, it has been horribly abused Directory
by fraudulent salespeople. Many people cringe when they
hear “investment grade” and a dealer can instantly ruin Looking for gemology
their reputation by using the term. related products and
services? Visit our
The term investment grade is also inappropriately applied Products and
to high-end gems and jewelry. However, those are not Services Directory.
necessarily “the best” investment. Gems of lesser value
often appreciate more and are easier to liquidate (see rule
#4 below). Low to moderate priced gems are the choice of
many well-informed investors, but many an investor has Recent Forum
also generated excellent returns in the rare, high-end, or Topics
unusual segments of the market. So how do you make
money investing in gems? I’ve proposed below the top 5 Synthetic
rules to follow when investing in gemstones: definitions-class
related
1. Control your cost basis. You have to buy “right” May 1 eNews
which means having built-in profit on the day you Mini-Quiz.
buy. hallo from
indonesia

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2. You are unlikely be able to hang on and recover Ruby

from making a bad buy on a gemstone. Inclusions
3. You need sources that can sell your gems at retail April 15
prices, so they can at least pay full wholesale eNews
prices. Mini-Quiz
4. Consider carefully how much you can markup
certain stones before you buy them.
5. Consider whether you can add value in a gem
deal, perhaps by re-cutting, re-polishing, setting,
marketing, etc. Scholarships

IGS seeks to
Let’s get into the details.
encourage the
advancement of
Rule #1 – Control your students pursuing a

cost basis. You have to higher education.

Learn more about the
buy “right” which 2015 Clark

means having built-in Scholarship.

profit on the day you

buy eNews
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You can make money investing in gemstones, but your
cost-basis in a given gem has to allow for a built-in profit
the day you acquire the gemstone. You need to have a email address
margin of safety, and paying the right price is the single
largest determining factor in whether or not you will Subscribe
generate a good return on investment. As with any
investment, this requires you to be knowledgeable and
exercise a good deal of caution and common sense.

You cannot pay retail for a gemstone and expect to sell it

for a profit in a few years. Buying low means seeking out
wholesale sources. Do your homework. Your best prices
come from Primary dealers; those mine and cut the stones
themselves. Secondary dealers buy from other
wholesalers, (usually primary dealers,) and resell them, still
well below retail. In addition, you will get a better price by
purchasing lots than single stones. Currently there are
some good sources for both primary and wholesale
dealers on the Internet. There are also wholesalers in most
cities and listings for them in the trade magazines.

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If you are knowledgeable enough, you can shop for

preowned gems at flea markets, pawnshops and estate
sales. You can also develop networks of jewelers who wish
to sell or otherwise liquidate colored gems they come
across. Sometimes you can find gems considerably below
current values. You must have the expertise to identify
gems, be able to distinguish between natural and synthetic
stones, and be prepared to do a lot of legwork. Some
people get a thrill from the hunt and greatly enjoy this
method.

For example, I was offered this 6.42 carat eye clean

Spinel for $155 delivered from a jeweler with whom I’ve
done a lot of business. The color was described as “an
unusual gray/green/purple” and he thought it looked more
like an unheated Zoisite (Tanzanite) than a Spinel.

Here are the two pictures he emailed me:

6.42 carat “Spinel” – 6.42 carat “Spinel” –

First Picture from the Second Picture from
Jeweler (click to the Jeweler (click to
enlarge) enlarge)

This color is quite typical of Spinel. In any event, I knew

that was a good buy on a larger spinel, even though the
color was not ideal. He assured me it was eye clean, so I
picked it up. And I’m glad I did. Turns out, it looks WAY
better in person, and it’s actually an unheated sapphire!
Not a bad deal.

Here’s what it looked like when my friend Dan Stair

photographed it, as I received it. As you can see, even a
good picture can add value! can you believe this is the
same stone pictured above?

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Here are Dan’s notes (Dan is

a gem cutter): “The stone
marked as a 6.42 carat spinel
is not a spinel. It appears it is
probably a sapphire. The
stone has the correct
refractive index for sapphire,
is dichroic and the inclusions
6.42 carat Spinel
look like what I see in a lot of
(Sapphire) – better
photo (click to sapphires. This one actually
enlarge) has a more blue color looking
from the sides, so if it’s
a sapphire, it came from a bit
of an odd crystal. They are usually blue looking into the
c-axis, and green from all other sides. This stone appears
to be the opposite of that. The top is not too badly done,
though it has some milds polishing streaks and micro chips
on some of the facet edges. The bottom could be given a
partial recut that would make the stone look a LOT better,
with minimal cost or weight loss. Or, it could be completely
recut. Using a different design might push more of the blue
in from the sides and improve the color slightly. This stone
has a nice, deeper tanzanite-like color and color shift to
being more purplish under incandescent light. This whole
stone could also be recut into a very pretty round with only
a slight hint of gray!way better than most.”

Turns out we invested two

hours to re-cut only the
pavillion! and here she is.
My basis in this (now 5.80
carat) sapphire is $235 total.
So, $40 per carat. On a
stone that should wholesale
for easily $350 a carat and
5.80 carat Spinel
retail for $1,000 a carat! If
(Sapphire) – After
this type of deal is your cup of Re-Cut (click to
yogurt, I just finished another enlarge)

post about re-cutting or

re-polishing and how it can
add value to a gemstone, and we also have a really
interesting post showing exactly how a gem is recut,
repaired, or polished.

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Your investment concerns need not be restricted to cut

stones. Rough gems, mineral specimens and finished
jewelry all hold potential for investment. Each of these is
specialized, so you should focus your attention on the one
that interests you most.

Rule #2 – You are

unlikely be able to hang
on and recover from
making a bad buy on a
gemstone
As a rule, gems increase in value at the rate of inflation.
This means you should assume that a bad deal today will
be a bad deal in 3 weeks or 3 years when you eventually
sell. When I make a bad buy on a stone or make a
mistake, I tend to take my licks quickly and sell. Finding “a
lesser fool” to own a stone at my inflated cost-basis is not
something I’ve ever been particularly good at. Some
people can do it, and if you are willing to hang on to a
stone in perpetuity, eventually you may get lucky and run
across someone willing to adopt your mistake, and maybe
even do so at a profit. But my preference is to take my
losses when I realize I’ve made a mistake, and move on to
try and find the next deal.

[Blue topaz] used to be rare and

demanded a fine price. When the
method of transforming common
white topaz into blues became
available, they suffered a
considerable drop in value.

Sometimes things turn out really well if you hang on, but in
my experience, that is the exception not the rule.
Sometimes, things also get worse. One good example is
blue topaz. They used to be rare and demanded a fine
price. When the method of transforming common white
topaz into blues became available, they suffered a
considerable drop in value. Another example is tanzanite.

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After the primary source closed, it skyrocketed in value.

For some reason, as of this article’s writing (early 2014),
Tanzanite has dropped dramatically in price and I’m
regularly seeing medium grade cut material hit the market
at $100 per carat or less, and top material going for $200 a
carat all day long.

These all represent exceptions to the rule, for better or for

worse. Regardless, Rule #1 applies! lacking the means to
predict the future value of a gem, your best strategy is to
buy as low as possible.

Rule #3 – You need

sources that can sell
your gems at retail
prices, so they can at
least pay full wholesale
prices
Jewelry stores are a likely source, as are auction houses
and online auctions. Note that, unless you own a business,
you are not likely to get a retail price. Also note that
none of these are as simple as calling your broker. You
must be prepared to find your own buyers. If you have
weak sales skills, you should not invest in gems. Most
gem dealers purchase quantities of great material, they
have good relationships with retailers (like jewelers) who
call them when they need something, they send some
stones from their inventory to the jeweler (a process known
as “memo”), and jeweler selects one or none to purchase
and sends the rest back. The jeweler will pay full
wholesale in this instance because they already have a
willing buyer, and the gem dealer will get full wholesale
because they took the risk and held onto the gem and they
had the sales channels to sell the gem when the
opportunity arose. This does not negate rule #2, though!
because rule #2 has to do with having too high a basis to
begin with. If you have an appropriately low cost-basis per
rule #1, hanging on to inventory can be a very nice way to
maximize profits.

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Rule #4 – Consider
carefully how much you
can markup certain
stones before you buy
them
Lower priced gems receive a higher markup than
expensive ones. Low priced gems are frequently marked
up five times or more. For example, when a jeweler orders
a stone for a customer, he may have a set minimum price.
It does not matter if the stone costs one dollar or five; a
jeweler may feel he needs a minimum of ten dollars to
justify the labor of ordering the stone.

It may be easier to find 25 buyers for

$200 stones than one for a $5,000
gem, but it might not be easier to find
5,000 buyers for a one-dollar stone.

Other gems are usually marked up three times over

wholesale. As things get more expensive, the markup can
get lower. Anyone would gleefully accept a 25% markup on
a $30,000 alexandrite. The diamond market is so
competitive, that markups frequently drop below 10%.

Now consider this from an investment point of view. The

greater the difference between wholesale and retail, the
better your chance is of making a profit (see rule #1). It is
also easier to find buyers for lower priced goods. However,
you can take this too far. It may be easier to find 25 buyers
for $200 stones than one for a $5,000 gem, but it might not
be easier to find 5,000 buyers for a one-dollar stone. You
just have to decide what type of business you want to be
in.

Rule #5 – Consider
whether you can add
value in a gem deal,

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perhaps by re-cutting,
re-polishing, setting,
marketing, etc.
There are two areas where gems take a substantial jump
in price. One is between rough and cut; the other is
between loose gems and finished jewelry. This involves
more effort, but is one of the best ways to increase the
value of your gems.

With an investment of labor, a lapidary can turn low value

rough into high value finished gems. The tricks here are to
buy your rough at a price that allows enough markup to
justify your labor and learning to cut in a reasonable
amount of time. Likewise, an experienced lapidary can
re-cut an existing gem and often improve it’s optical
properties and therefore it’s desirability.

If you are not a gem cutter, you can have others do the
work for you. (See our Recommended Suppliers for gem
cutters.) Again, you need to do your homework, but this is
one of the most direct means of adding value to your
gems.

Setting the stones also requires special skills, but

frequently less labor. You can also contract out this work if
you are lacking the skills to do it yourself. Finished jewelry
has the advantage of a larger market than loose gems.

Related Categories
Determining Gemstone Value, Price, and Appraisals

Jewelry and Lapidary

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