Coloured Gem Investments?


Conservative and speculative coloured gemstone investment strategies

What you should pay attention to when buying coloured gems

Ruby or Tanzanite?
Conservative or speculative?

Currently many investment counselors advise their clients to invest in hard assets like gold, real estate, art or gemstones. The latter have some advantages over other hard assets. Gemstones are highly compressed capital which can be moved easily and inconspicuously. Besides one must not forget their intrinsic purpose: gems can and should be worn as jewellery.

When hearing the word "gemstone" most people immediately think of diamonds.
Now diamonds do have some advantages over coloured gems. Their price is more or less controlled, quality criteria are standardized the world over and they are relatively easy to sell.

On the other hand diamond prices are slow movers and if your goal is to increase the value of your investment rather than only to secure it, you will need a lot of patience. After all, before you can resell at a profit, wholesale prices, for which you probably will have to sell, must rise to the level of former retail prices, for which you probably bought.
Now, of course, the same is the case with coloured gems but usually it does not take that much time.

With one noticeable exception (more about that later), the coloured gems markets are not regulated. Prices are not controlled and can vary considerably in different parts of the world, according to their popularity there.

The reason why investments in coloured gems are highly interesting is simple: return rates can be much higher than with diamonds.

Now let´s talk about what you must pay attention to when you buy.

As with all investments there are conservative and speculative strategies.

Conservative coloured gems are the classics ruby, sapphire and emerald.
Everybody knows them, everybody loves them and together they account for by far the biggest portion of the worlds coloured gemstone trade. Compared to other, less known gems, buyers are relatively easy to find.

Increases in value are generally steady but slow, particularly in the low to medium price range. However, in the premium segment price increases over the past 25 years have in some cases been enormous. For instance: in 2009 a renowned gem dealer tried to buy back a 20+ cts fine Ceylon sapphire, which he had sold in the 1980ies for 2.5 million Austrian Schilling, for 450.000 Euro (more than 6 million Schilling). Unfortunately, for the dealer, the lady showed no interest whatsoever...

Speculative gems can be grouped into stones suitable for jewellery purposes and collectors gems, which quite often are not suited to be worn in a ring because of their soft nature or their brittleness.

Collectors gems often have a high potential for above average price growth but they are also high-risk investments because:

1. collectors of high-end coloured gems are a rare bread
2. there is a certain danger of rapid drops in price should new deposits be discovered. Here is an example: there is a gem called Taaffeite of which until the end of the 1980ies only one deposit in Sri Lanka was known. In gem literatur only a dozen or so specimens were described. When a second deposit was found in brazil, which yielded better and larger stones than the Sri Lankan deposit, prices fell from 60.000 Schilling per carat to 10.000 Schilling p.ct. within weeks!

Speculative gems suited for jewellery wear, on the other hand, are of high interest to investors. During the past 25 years a range of coloured stones has grown from hardly known exotics to popular and highly sought-after gems.

Tanzanites, Tsavorite and Mandarin garnets, pink and red spinels and pink sapphires
might act as examples.

Twenty years ago fine pink spinels were traded for a 100 to 200 Euro per carat. Today these beauties fetch up to 3000 Euro p.ct.

Tanzanite is the above-mentioned exception to the rule. It is the only coloured gem, where a single company (TanzaniteOne) dominates the market. [Not any more.TanzaniteOne was sold twice. The current (April 2021) situation is unclear. In March 2020 the Tanzanian government cancelled the mining licence. ]

An estimated 85% of the worlds tanzanite trade takes place in the USA. After the bankcruptcy of the Lehman Brothers this market collapsed and prices dropped 60% within a year.

Now this happened before, at the end of the 1980ies. TanzaniteOne was not in existence then and prices dropped due to drastic oversupply rather than a decrease in demand. Read more about the turbulent history of tanzanite in our article "Tanzanite Rally", News 2010.

If asked today, what we recommend to speculative investors, it would be tanzanite. Prices will climb again, it does not take prophetic powers to say so. Economic data sound benign again and the predictions for economic growth say that the USA will come out of the crisis well ahead of the European Union.

Already tanzanite prices show first, albeit timid signs of recovery. This is probably due to the fact that the big traders, amongst them some that had pulled out of the tanzanite trade years ago – because of TanzaniteOne's rigid sales policy and sky high prices? – jump on the bandwagon and stock up while prices are still down.

As soon as demand for tanzanite picks up, particularly in the USA, prices will start rising again, slowly at first but when the wholesalers run low on stock and have to re-buy for market price, increases of 5-10% per annum can realistically be expected for some years.

At least that was the case in the beginning of the 1990ies. Since then tanzanite has gained even more in popularity and, above all, back then TanzaniteOne, a company that has the interest and the market power to drive prices up to the former level (and beyond?), did not exist.

Before we turn to a discussion of coloured gems quality criteria, let me tell you about another investment strategy, which i termed micro investment.

At the end of 2008 we at the Vienna Gem Center were confronted with an investor´s request, which at first sight looked peculiar, if not foolhardy. However, at second sight, it actually makes a lot of sense.

Normally gemstone investors think fine, large and expensive. In December 2008, when the full scale of the economic crisis became evident, two gentleman approached us, asking to buy rather large quantities of cheap gems, setting a limit of € 50 per stone. They decided to go for several lots of small round amethysts, tourmalines and aquamarines.
My warning, that as laypersons it would be next to impossible for them to re-sell a lot of 100 pcs of 5mm round amethysts was met with the statement, that the stones were not meant to be re-sold.

These two gentlemen wanted to be prepared for what they considered to be the worst case scenario, currency devaluation through hyper-inflation and a return to barter trade in everyday life. And surely it is easier and makes more sense to trade a small amethyst or two for a bag of potatoes, rather than a 2cts top Burma ruby for a whole freight car of potatoes.

The catch is, of course, to find an exit strategy. What to do if we do not return to barter trade? Well in that case the two gentlemen wanted to present the stones to family, friends and, both being company owners, to customers and employees.

Of course it cannot be the final goal to give away your investments as christmas presents. So rather than investing in 5mm amethysts we would advise followers of the micro investment strategy to put their money on 1.5 to 3mm rubies, sapphires, emeralds and maybe green and orange garnets or pink sapphires.
No jeweller or goldsmith needs 100 pcs of 5mm amethyst and if he does, he will call us, rather than buy for stock. But with small rubies, which he needs for pavée settings all the time, your chances to re-sell and make a profit are considerably better.

Actually there is only one golden rule: buy quality!

The times of large rose gold rings with chunky low-quality stones are over.
Today customers do not buy the largest but the best stone they can get for their money. So, buy a top quality stone of one carat rather than a 5cts stone of dubious quality.

The production of cheap jewellery has long moved to Asia. In Europe and particularly in Austria, mostly high grade jewellery is produced and high grade jewellery needs high grade gems, no matter if it´s an expensive sapphire or a comparatively cheap amethyst.

How to identify high quality coloured gems
We all know the 4 Cs of diamonds, namely cut, colour, clarity and carat (weight).
By and large the same goes for coloured gems.
In our opinion the most important C is

A perfect cut can turn an unimpressive piece of rough material into a sparkling jewel.
To distinguish between an excellent and a merely good or average cut takes some expertise. One has to judge the correct height of the gems crown (the part above the girdle) and pavilion (below the girdle), the size of the table facet, whether the table is exactly parallel to the girdle and so on.

The good news is that even for the layperson there are some tricks that help you to decide.

To obtain maximum brilliance, the correct angle of the pavilion is of paramount importance. If the pavilion is too shallow, light entering the stone through the top will leave it through the bottom. The result is a significant loss of brilliance in the center of the stone, when viewed from the top. In the trade this is called a "window" or a "fish eye".

To judge whether the pavilion is cut at the right angle, place the stone bottom-down on the tip of your finger. Do not apply pressure, just touch your skin gently with the tip of the stone, then view it from above, perpendicular to the table facet. If the skin is clearly visible, the stone is too flat.

A bulky pavilion on the other hand does not lead to a distinct loss of brilliance but is no good nonetheless because it means extra weight which you have to pay for.

Equally important is symmetry, which is not always ideal, particularly with square or baguette gems. A slight asymmetry can be hidden in a bezel setting but firstly not every stone is set this way and secondly, when selling a loose stone, any professional buyer will use the asymmetry to press for a lower price.

Last but not least, have a good look at the girdle. A well-cut girdle is of even width and preferably polished.
Thick girdles mean excessive weight and can cause complications during setting. Both will cost your money.
It gets really dangerous, when the girdle is too thin or even razor-sharp, if only in places. When crown and pavilion facets meet without a girdle between them, the stone will most probably chip during setting. The damage usually affects both the crown and the pavilion. The loss of weight and value after repair can be significant.

As a rule colours should be as pure as possible. Brownish tinge in red or green stones and green tinge in blue stones is absolutely undesirable.
Many gems show different colours in daylight and in artificial light, so always view them under different lights. This is particularly important with garnets, rubellites (pink and red tourmalines) and, of course, colour changing stones like alexandrite.

Customers are influenced by diamond commercials and often ask for loupe-clean stones. However, in the coloured gem trade we talk of eye-clean, rather than loupe-clean.
It has to be said that we coloured gem traders have a more relaxed approach to inclusions than diamond traders.

Firstly (the right kind of) inclusions are proof of genuineness. Yes, most synthetics also have inclusions but they differ from those found in natural stones. Even though the producers of synthetic gems have made impressive headway in their quest to make inclusions in their products look like those in the real thing, the genuineness in most cases can still be authenticated by professionals with the help of a loupe or microscope.

This effectively means that inclusions can increase your chances to sell. No jeweller the world over will buy a high class eye-clean ruby, sapphire or emerald if you cannot produce an internationally accepeted certificate of a renowned gemmological institute. If, however, he knows his subject and detects some rutlie needles in the ruby or edgy three-phase inclusions in the emerald, which give evidence of natural origin, you can start negotiating the price.

Unfortunately not all jewellers and goldsmiths have done their homework, so a certificate will always facilitate the sale.

The point is that a good gemstone does not necessarily have to be loupe-clean. For us the ideal stone sports at least one inclusion, ideally small enough and well hidden not to disturb brilliance and clarity, large enough to be detected through a loupe in expert hands and diagnostic enough to prove the natural origin.

Secondly, inclusions render gemstones more affordable to many of us. Eye-clean rubies and, in particular, emeralds of some size are so rare and thus expensive, that only a chosen few can afford the luxury. So inclusions in these stones are much more readily accepted than, say, in aquamarines. In the case of emerald one even sometimes hears the euphemistic term jardin (french for garden) to describe its inclusions.

Carat (weight)
The weight of gems is given in carats with one carat being 0.2 grams.
In many but not all gems, weight has a decisive influence on the price per carat. The price per carat of a 3cts burma ruby is several times higher than that of a 1ct stone of matching quality because 3cts rubies are disproportionally rarer than 1ct rubies.

The increase in price per carat is particularly steep with stones from so-called secondary deposits, also called alluvial deposits. This means that the gems are not found at the place of their growth but far away in the gravel of (former) rivers, in places to which the gems have been transported after they were freed from their parent rock by the forces of weathering. Naturally not many large crystals survive this brutal handling...

Tasvorite garnet may act as a good example.
Starting from 1ct stones, prices per carat for 3cts tsavorites can threefold and above 20cts prices may be as high as forty times the price per carat of a 1ct stone.

With gemstones which are found in large enough quantities, weight has little influence on price. The price per carat of a 10cts amethyst is hardly higher than that of a 5cts amethyst. From a certain weight on prices even start to decline again. This is the case with stones which will not be mounted in jewellery because of their emormous weight. These stones are used as show pieces or for decorative purposes only.

Aquamarine is a special case. Aquamarine prices start to drop in sizes that are still usable for jewellery. The reason is that this light blue stone usually needs some size to accumulate colour. In other words, a 1ct aquamarin of truly good colour is much rarer than a 20cts aquamarine of the same colour and thus commands a higher price per carat.

Finance expert André Kostolanyi once said that there are three criteria to consider, when you want to open a shop: location, location and location.

Slightly modifying this bon mot and considering the 4C, we say with coloured gems there are four criteria to watch: buy quality, quality, quality and quality only, no matter which gem and price range...