Investing in Gems
"Investment grade" is a dirty term. While not illegal, the US Federal Trade Commission frowns on it use for the same reason they frown on "precious" and "semiprecious." These terms simply hold no meaning. The term investment grade is usually applied to high-end gems. However, they are not necessarily the best investment. Gems of lesser value often appreciate more and are easier to liquidate. Low to moderate priced gems are the choice of many well informed investors.
Not only does the term investment grade have no clear meaning, it has been horribly abused by fraudulent salespeople. Many people cringe when they hear "investment grade" and a dealer can instantly ruin their reputation by using the term.

Making Money
You can make money investing in gemstones. As with any investment, you need to be knowledgeable and exercise a good deal of caution and common sense.
As a rule, gems increase in value at the rate of inflation. Of course, there are always exceptions. 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 notable exception is tanzanite. After the primary source closed, it skyrocketed in value.
These represent exceptions to the rule. Lacking the means to predict the future value of a gem, your best strategy is to buy as low as possible.

Buy Low and Sell High
You cannot pay retail for a jewel 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.
If you are knowledgeable enough, you can shop for preowned gems at flea markets, pawnshops and estate sales. 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.
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.
Selling the gems for a profit is the second consideration. 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.

Price Variations
Another point to consider is that 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.
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. 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.

Value Added
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.
If you are not a gem cutter, you can have others do the work for you. 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.

Trade Value
Lastly, do not forget the time honored tradition of horse trading. A couple gems in your pocket can come in handy in a time of need. Imagine if your car broke down, or you found the picture frame you have long been seeking, and the cost was $100. If you had a sapphire that cost you $40 and is worth $120, the dealer might well take it in trade. You just made a profit on your investment!

Understanding the value of colored stones is vital to a successful purchase, but grading and valuation is not that easy. Indeed, it is a far more subjective process than grading diamonds.

Appreciating the meaning, and the relative importance of the 4C’s, (COLOR, CLARITY, CUTTING, and CARAT weight) is essential to evaluating the quality and value of colored gemstones. For buyers, COST and CONFIDENCE are additional issues that need to be addressed.

“ I think it pisses God off if you walk by the color purple in a field somewhere and don’t notice it.”
Alice Walker

Color is the most important factor in determining the value of colored gemstones and most dealers assess the color component of a stone at between 50 – 70% of its value.

In general, a bright, rich, intense, pure, and vivid color is always best. Gemstones should not be too dark or too light. Ideally, they should look good under any light conditions. Color change stones should display a strong change in color between alternative exposure to daylight and incandescent light sources.

It is worth bearing in mind that the color of a stone is always affected by the quality of the light in which it is examined. Daylight varies throughout the day and according to global latitude. Morning and afternoon light have their own specific characteristics and many stones will appear different throughout the day.

Artificial light also affects a stone’s appearance, for example an incandescent light source enhances red tones while a fluorescent lamp brings out the greens and the blues. To help deal with these variations, many dealers use their own light source when they buy. But beware, more unscrupulous dealers may misuse these lighting techniques to inflate prices to unsuspecting buyers or unfairly to deflate prices while bargaining with sellers.

Gemological Institute of America (GIA) suggests to describe color for colored gemstones as Hue, Tone and Saturation, where Hue describes the dominant and any additional colors visible in a stone Tone: the relative lightness or darkness of a hue or color sensation. Saturation: the strength, purity or intensity of the hue present in a color sensation. A guide of the technical aspects of color description can be found here.

Although specific colors and the components of those colors do markedly affect the prices of most gems, personal preferences are also important. After all, who wears the jewelry, the customer or the gemologist/appraiser?

II. Clarity
“ I am just a nice, clean-cut Mongolian boy.”
Yul Brynner

Clarity in gemstones is always an important consideration, second only to color in importance. Colored stones are almost never as clean as diamonds and they should not be judged by the same criteria.

Important stones like emeralds, rubies and alexandrites are rarely clean. Clarity and transparency are always desirable but color is still of paramount importance.

Gemstones are not created equally, some are clean and some are always included.

Gemstones that are normally found to be clean include Amethyst, Aquamarine, Blue Topaz, Citrine, Kunzite, Tanzanite, Yellow Beryl, Yellow Chrysoberyl

Gemstones that normally may have a few inclusions include Alexandrite, Andalusite, Iolite, Peridot, Rhodolite, Ruby, Sapphire, Spinel, Tourmaline, Tsavorite.

Gemstones that normally do not come clean include Emerald, Red Beryl, Rubellite, and Tourmaline.

There is no universally accepted standard for grading the clarity of colored gemstones. Although the GIA colored stone clarity grading system is a notable attempt to address the issue, it is still the subject of a great deal of discussion and debate. To read about the GIA system click here.

In some cases it is the inclusions which cause the optical phenomena and enhance a stone’s value. The best star sapphires and chrysoberyl cat’s eyes are usually translucent and it is the minute inclusions inside the stones that reflect the light and produce the star or cat’s eye effects.

III. Cut
“ Born in fire, blown by mouth and cut by hand with heart.”
Waterford glass

The most usual method of fashioning a gem is to cut the surface into a number of flat faces, known as facets. This gives the stone its final shape and "cut". Polishing is the oldest form of fashioning.

Carving produces three-dimensional objects by cutting them from a larger mass of material and engraved images are made by scratching out lines or holes to leave a raises image.

The cut is what gives a gemstone its beauty and brilliance. An ideal cut which reflects all the light in an even pattern without any darkness or windowing is usually preferable. In faceted stones, specific indices and critical angles are what produce the maximum brilliance.

Why isn’t every stone cut perfectly with ideal angles and proportions?

Nature produces rough stones in a wide variety of shapes and sizes. Many crystals may be flat or tabular. The skill of the cutter is to try to maximize the yield and produce the largest stones from the available material. Since gemstones are sold by weight, larger stones are usually worth more than smaller stones. In addition, the–per carat price of larger stones is also often higher, so that an increased carat wt. multiplied by an increased per–carat price may result in an exponential jump in price for a relatively small difference in weight.

What about windows in gemstones?

Jewelers, gemologists and gem dealers always talk about windows. A window is something we can look through, and indeed, in the gems business windowed stones are those that are usually too flat or poorly proportioned resulting in stones one can see right through. The window causes an absence of reflection in the center of the stone that reduces the amount of light reflected thus reducing the brilliance of the stone.

So why do some gems still have windows?

Some stones are especially rare in larger sizes. A flat and windowed 3ct.+ Burmese ruby would almost always be worth more than the same stone perfectly cut to be a 1ct.+ stone. There are no fixed rules about cutting and the ultimate value of a particular stone after faceting. A skilled cutter’s careful consideration of yield and proportion, as well as positioning of un–removable inclusions will always produce the best result.

How does color intensity affect the cut?

The density or intensity of a color is always an important consideration for cutters. Any gemstone will become lighter as its size is reduced. The color of over-dark stones will improve as their size is reduced while light stones will become even lighter and lose some of their value as a result of cutting.

Because of their beauty and rarity, gemstones are valuable – especially rare stones with good color and clarity. Well-cut and proportioned stones look better and are easier to sell. As dealers and cutters we frequently re-cut poorly faceted stones, using our experience to select those with color and clarity and then drawing out their hidden potential, while still maximizing final weight and value.

IV. Carat
“ Now cheaply bought for thrice their weight in gold.”
John Bartlett

A carat is a metric unit of weight used in the gemstone industry to describe how much a gemstone weighs. A carat is equal to one fifth of a gram and there are five carats in one gram. Thus when referring to decimal fractions of a carat, a point is equal to .01 (1/100th) of a carat.

Valuable gemstones are generally sold by weight and not by size. Less valuable materials can be cut into standard calibrated sizes commonly used by jewelry designers.

Larger stones are always rarer and per-carat prices will usually be more than equivalent to similar stones in a smaller size. Relationships between per-carat prices and sizes will vary with each specific gemstone group. As a starting point, we use the following guidelines, albeit with great flexibility:

(1/2 – 1cts) = price($x/cts.)
(1 – 2cts) = price($2x/cts.)
(2 – 3cts) = price($4x/cts.)
(3cts.+) = price($4-5x/cts.+)
(5cts.+) = much price variation.

Carat weights do not determine size. The density of gems varies from very light stones like opal to especially heavy stones like sphalerite or zircon. A 1 ct. round diamond measures 6.25mm. An opal the same size might only weigh .70cts. while a zircon that size could weigh 1.40cts.

V. Cost
“ When we mean to build, We first survey the plot, then draw the model; And when we see the figure of the house, Then must we rate the cost of the erection.”
William Shakespeare

Like any other commodity, supply and demand determine the prices of gemstones. Fine gems are never available in quantity and demand is always strong with speculative gem dealers buying the best, the biggest and the rarest stones whenever they can.

The reality of most mining operations is they are "here today, and gone tomorrow" operations. Especially in developing nations, new discoveries will attract tens of thousands of hand miners and diggers but few will strike it rich.

Deposits are quickly depleted and mining stops or becomes too expensive when the gem deposits near the surface are exhausted. Deeper mining is more expensive; it requires more machinery, more fuel, and much more time and effort to produce the stones. As the depth increases, the gems become more expensive and when the price of production exceeds the market price, the mining will stop.

Supply is unpredictable and even if a deposit can continue to be mined, conflicts over royalties, ownership issues, and political, tribal, or power struggles will restrict or inhibit the production sooner or later.

Supply may be unpredictable, but so too is demand, which can be promoted, or simply be the result of some unforeseen fashion trend due to the popularity of a certain color, or because of the association of a particular stone with some famous personality.

TV shopping channels can and do create demand for previously unknown materials. Tanzanite is a good example. Relatively unknown 10 years ago, demand for it sky-rocketed not only because of its beauty but because it was available in sufficient quantity and at a price attractive enough to be promoted on TV.

The DeBeers group is another example. Diamonds are popular because DeBeers spends millions of dollars a year promoting them! How would we know that "a diamond is forever" if they had not told us?

VI. Confidence
“ If appearances are deceitful, then they do not deserve any confidence when they assert what appears to them to be true.”
Diogenes Laertius

Successful gem buying at a professional level requires years’ of experience. As a hobbyist or collector, gem buying can be fun and profitable. As a buyer or an investor – do your research! Go to jewelry stores, visit websites or checkout some of the online auctions – shop around. Gain knowledge and confidence!

One of the best ways to learn is to attend any of the many gem and mineral shows that are in your local area and are open to the public. Many of the shows are sponsored by local clubs or by commercial show promoters.

Finding a good reliable source of gems is one thing, but you must also know and trust your supplier. Are they members of trade organizations? How long have they been in business? Do they have a good selection? Do they make their own jewelry? Do they understand colored stones?

What about internet suppliers? Are the pictures clear and focussed? Are the images enhanced? What about return policies? Do they have references? What about enhancements and disclosures? Do they offer internationally-recognized certificates of gem stone identification? Are they knowledgeable certified gemologists? Are they quick to respond to questions? What about insurance? What about testimonials?

Knowledge and confidence are the real secrets to buying gemstones correctly and at a reasonable price. And because grading and pricing is so subjective, even experienced dealers like to buy from their regular suppliers.

Colored stones present their own particular challenges. The market for them is highly fragmented, with no central marketing organization; each stone may have several countries of origin and the prices of the gems are constantly changing, so it is the dealers, the jewelers, and the customers themselves who make the market in colored stones – after all, that’s what makes colored gemstones so exciting!