Personal Finance

Gem of an investment

Bhavana Acharya | Updated on November 20, 2014 Published on October 12, 2014

If you are looking for high returns, don’t stop with diamonds. Gemstone prices too have appreciated in recent times

A flash of red. A burst of green. A shimmer of blue. The trinity of precious gems — rubies, emeralds, and sapphires — don’t have the white brilliance of diamonds. But they are slowly chipping away at the diamond’s bastion. Affluent investors are shifting to coloured gems that have a character of their own.

If you can squirrel away diamonds as long-term investments, can you do the same with the Big Three of gemstones? It would seem so. The GemVal Aggregate Index, which represents prices of 26 gemstones, has risen by around 47 per cent in the past five years.

Idiosyncrasies abound

But gemstones have a unique set of idiosyncrasies, of which quirky pricing is the biggest. If you can safely navigate the minefield that is gemstone pricing, appreciation in price may be quite handsome in the long term.

The precious gem trinity, like diamonds, depends on the 4Cs — the stone’s cut, its clarity or freedom from impurities (flaws or inclusions), its colour or hue, and its carat (weight). But while diamonds have a clear grading system, coloured gemstones don’t. That’s the first reason why there’s no standardised pricing for gemstones.

The second pertains to the ‘inclusions’ or imperfections in each stone. It is near-impossible to get an absolutely flawless coloured stone. Top-quality stones usually have slight inclusions. Flaws can also, at times, even enhance gem values depending on the type of flaw. A star-patterned inclusion in a ruby or sapphire is rare, for example.

Gemstones can be treated to address these imperfections, usually through heat or by coating with oils and polymer compounds, which take away from the ‘natural’ element. So an untreated gem commands a premium over a treated one.

The third uncertainty pertains to the colour. Not all red stones are rubies; and all green ones are not emeralds. A stone with a deeper, richer, or more brilliant hue is pricier. A certain level of colour saturation must be met for classification into gem types. For example, ruby and sapphires are both varieties of the mineral — corundum. But a pink-toned ruby is actually not a ruby. It can sometimes turn into a (pricier) pink sapphire. A lighter-toned emerald is a green beryl, which is both cheaper and more common.

The fourth problem point is the mine from which the stone originated, which can sometimes influence prices. Certain mines generate better-quality stones. Kashmir sapphires are extremely rare and expensive. Rubies from Burmese mines are also rare. Sri Lankan sapphires command premiums.

Then Indian market has its own peculiarities. Loose stones are popular in the Indian market but their demand is driven mainly by astrological and religious beliefs, says Haresh Soni, Chairman, Gems & Jewellery Trade Federation. For this reason, he says, one cannot take a price gain for granted, even though there is a resale market for gemstones. Further, as stones such as emeralds are softer, scratches or breaks can lower the value.

In a nutshell, valuing a gemstone as one would gold, or even a diamond, is complicated. A lot also depends on subjective evaluation by the individual jeweller on all the Cs (except carat).

Demand rise

But if you have a love for gemstones and are willing to wait it out, it would gladden you to know that precious stone prices are generally moving northwards.

As a thumb rule, emeralds come at the top of the coloured stones pecking order, followed by sapphires and then rubies. But market fancies can take some gemstones up and others down. Going by the GemVal index for the gem, ruby prices have almost doubled in the past ten years. Demand for fine-quality gems is countered by very scarce supply. Sapphire prices are up about 65 per cent. Rise in emerald prices has been more modest, with the representative GemVal index up 24 per cent in the past five years. Gemstone demand has taken the route most luxury goods have in the past few years — corrected in 2008 and 2009 before moving up in the past two years — especially for fine-quality stones. But buying of low-quality gemstones was maintained throughout.

Improved consumer confidence in the key US market led the bounce-back, and can sustain price trends. Demand has also been growing across markets — Japan, the Gulf countries, Europe, China and India. In dollar value terms, global import of rough emeralds, rubies, and sapphires were up 21 per cent in 2013, better than the 13 per cent growth the year before, going by UN Comtrade data. Next, efforts are on to organise the market and drive demand for coloured gemstones just as DeBeers did for diamonds.

For the investment-oriented, it is best to buy loose gemstones. Buying at the cheaper wholesale level will also improve returns. Insist on certification from independent gemmologist labs on the genuineness of the stone and also on whether it has been treated. Indian Gemmological Laboratory, IGI India, Gemmological Institute of India, are some of the labs that issue gemstone certifications.

Supply is scarce

Supply is the other side of the equation that drives prices. Unlike diamonds, coloured stone mining is not concentrated in the hands of a few; so it becomes harder to control supply and influence prices. Among coloured gemstone miners, Gemfields Plc. is the largest.

The company accounts for about 25 per cent of the global emerald output, says Rupak Sen, Regional Marketing Director-Asia, Gemfields. Annual production in the past three years has been 20-30 million carats, according to the company’s reports, and is likely to continue along similar lines. Price movement for emeralds will, therefore, depend more on how demand pans out.

Supply of rubies received a boost this year with production starting from Gemfields’ mine in Mozambique — probably the world’s single largest ruby mine, says Sen. Eventually, its share in total ruby production could reach 25-30 per cent. Burmese-origin rubies may add to supply if current embargoes are lifted. But this is uncertain, and given the rising demand for quality gems, ruby prices are unlikely to dip even with a production increase. High-quality sapphires are scarce too, concentrated in Sri Lanka and Burma, which can support prices.

Brilliant rocks

A storied gem, a rich history and rarity are the perfect mix for record auction prices. In April this year, auction house Sotheby’s auctioned off a ring for almost $5.1 million. The reason? The ring held a square emerald-cut Kashmir sapphire weighing 28.18 carats, among the finest sapphires ever to appear at an auction.

Also in April, Sotheby’s auctioned the Hutton-Mdivani Necklace, the greatest jadeite bead necklace in the world. It set a record auction price for any jadeite jewellery, fetching a thrilling $27.44 million.

A 29.62-carat cushion-shaped oval Burmese Mogok ruby and diamond ring was auctioned off by Sotheby’s for $7.34 million, the highest for a ruby. The world record auction price for a ruby necklace was set by a Burmese ruby and diamond necklace. In November 2013, Christie’s auctioned the 87.78 carat necklace for $6.42 million.

In December 2011, the auction of The Collection of Elizabeth Taylor by Christie’s totalled $156.8 million, the highest for a private jewellery collection.

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