VOL. 21, #3, Fall, 2003

Burma Goods: Banned, Collecting Green Diamonds, International Market Updates, Notable Quotes, Book Review: The Connoisseur's Guide to Precious Gemstones, In the News

  Sep 29, 2003   admin


Burma Gemstones: Banned
by Robert Genis

On July 28, 2003 President Bush signed the  Burmese Freedom and Democracy Act closing the U.S. market to imports from Burma (Myanmar).  The ban went into effect on August 28. This political action was taken in response to the recent arrest of Aung San Suu Kyi, the Nobel Peace Prize laureate who has been held by the country's ruling junta since May 30.  The new law imposes economic sanctions for three years on the government of Burma.  The United States imported $356 million worth of textiles, clothing, footwear and gemstones from Myanmar in 2002. 
Although the bill appears to be targeting the textile business in Burma, the legal importation from Burma into the United States of ruby, sapphire, jade, spinel and other gemstones is over.   It will NOT be illegal to buy and sell these goods in the United States, but no new gemstones will be allowed.   

Aung San Suu Kyi      
Suu Kyi was arrested after a violent clash between her supporters and pro-government groups outside Rangoon (Yangon).  Suu Kyi's National League for Democracy party won national elections in 1990, but military leaders blocked her from taking power.  She spent more than half of the past 13 years under house arrest.  Aung San Suu Kyi recently had major surgery  for an unspecified reason at a private hospital in Rangoon.  Burma's foreign minister predicted Aung San Suu Kyi would not remain in detention.
Pressure is growing between the leaders of Burma- Generals Than Shwe, Maung Aye and Khin Nyunt.  On July 23, under threat of Burma being kicked out of the Association of Southeast Asian Nations (ASEAN), the Burmese generals released 91 political prisoners.  Malaysian Prime Minister Mohamad is leading an effort to have Burma expelled from ASEAN.  In late July, the Japanese government cut off economic aid and debt relief worth $224 million to Burma.  In response, Burma's Prime Minister proposed a "road map" toward democracy with free elections, but no timetable has been set.

Burma Economy
While the Burmese government keeps issuing statistics showing the economy growing at double-digit rates every year, western economists do not believe these numbers.  The Burmese economy is experiencing skyrocketing prices for gemstones, rice, cooking oil and other basic commodities.  A run on commercial banks this year forced most of them to close, unable to collect loans or pay depositors.  Burma's currency, the kyat, has plummeted 30% against the U.S. dollar on the black market this year.  Some estimate the new U.S. sanctions has already cost textiles workers the loss of about 350,000 jobs in Burma.

The reality of sanctions
What is unusual about this embargo is the US is not a major trading partner with Burma, and the embargo is unlikely to have any real impact on the internal policies of Burma. The countries that do trade with Burma are China, Singapore, Malaysia, Thailand, India and Japan.  The sanctions will not work unless the U.S. can get China and the other ASEAN nations to go along.  Ironically, in the case of the gems, those involved in smuggling are often fighting to overthrow the military junta. Therefore, a case can be made that the embargo will actually hurt those who are fighting repression. Of course, the Burmese government cannot even control many mining areas.  These are truly lawless frontier areas.

The generals in Burma ignore world opinion and the only people who will probably be hurt by such sanctions will be the poor. With the opium, heroin, methamphetamine and timber trades to profit off (trades which are already banned), they can live quite nicely.

Many Burmese experts feel the net effect of this new bill will be to further increase the power of the Burmese junta, because poor and hungry people are easier to dominate.  The sanctions will probably only affect the average Burmese people who could care less about politics.  The Burmese do not like the government anymore than anyone else does.  In Burma, there are no welfare or unemployment benefits. Families must now struggle to put food in their mouths.   In many third world countries, when a families only source of income is taken away, people die.  No money usually means no food, no medicine and no school for the kids.

Have the over 40 years of sanctions done anything to produce change in Cuba?  Did sanctions work in Iraq? Sometimes an embargo policy sounds good, but is often ineffective.

Smuggling Burmese Gemstones
Most legitimate gemstone dealers legally import Burmese goods into the United States. However,  the vast majority of gems are smuggled, both within and outside of Burma.  Nobody wants to pay the taxes or even let the Burmese government know they have money.  The typical route for a gem is from a mine, then into someone's pocket for a trip to Mandalay, Rangoon, Mae Sot, Maesai or Bangkok, then on to a foreign dealer.  The government never knows and never gets any money from the trade, and the miners and dealers make a living.
US Market
The US is not really a big market for Burma stones, because the total value of all stones coming out of Burma each year is not especially large anyway.    However, for the connoisseurs who want unheated Burma goods and view them as the creme de la creme of the gemstones market, these events are not good news.  Who knows if these goods will become like Kashmir sapphires- ultra rare and the only way to purchase these goods is from collectors who will want high prices.  If there is no new production, how can they ever replace their goods?  This is the feeling of owners of Kashmir sapphires.  Will the collectors of Burma goods follow their suit?

Million Dollar Question
The million dollar question is will gemstones be banned from legal importation, or will creative dealers find a way to circumvent the law?  Whatever the case, you can expect these goods to rise in price if any enter at all.

According to Ted Themelis, a leading expert on Burma, "neither the Burmese kings, nor the colonial British rulers, nor the present Myanmar government, nor President Bush can actually control the gems of Burma. History speaks for itself."  Although it is impossible to predict the future, it is safe to assume Burma goods may rise dramatically in price...especially when the gemstones presently in the pipeline are gone.

Collecting Green Diamonds
Natural green colored diamonds are extremely rare and desirable. The beauty of these gems has spawned unprecedented desire and unparalleled prices for these diamonds by collectors and connoisseurs.  According to Stephen C. Hofer, author of Collecting and Classifying Colored Diamonds, "Natural green diamonds are rare and old and are simply created by a set of unique geological factors."  

Dresden Green
What the Hope diamond is to blue diamonds, the Dresden Green is to green diamonds.  Interestingly, in 2000, the Dresden Green traveled to the Smithsonian Institute for a special exhibit alongside the Hope Diamond.  It is apple green and weighs 40.70 carats. The Dresden Green is notable because of its natural green inherent body color and remarkable cut.  The diamond derives its name from Dresden castle where it was on display continuously from 1768 to 1942. Some speculate the diamond may have originated from the diamond mines in the district of Golconda in India. Others contend the stone is Brazilian. The large green diamond was brought to London and cut in 1726. In the early 1740s, a Dutch merchant sold it to Frederick Augustus, King of Poland, for $150,000.  Augustus constructed the Green Vaults at the Historical Museum to display his treasures. During World War II, the Dresden Green, along with the rest of the collection of the Green Vaults, was moved to safety out of Dresden. However, this did not deter the Russians who took possession of the collection during the war and then returned it in 1958. The Dresden Green has been publicly redisplayed ever since.

GIA Examines The Dresden
The GIA examined the stone in 1988. The Dresden Green diamond was proved to be not only of extraordinary quality, but also a rare type IIa. The clarity grade determined by GIA was VS1, and the gem has the potential of being internally flawless. Unbelievably, the GIA graded the symmetry good and the polish very good. This is amazing for a diamond cut almost three hundred years ago.

Rarity Today
According to an internet colored diamond dealer who deals primarily with collectors, "I tend to trade about one or two a year.  The last stone I sold was an oval 1.20 fancy intense green diamond.  The color looked like the evergreen trees of Washington state or a bluish green, even though the grading report did not mention blue.  The bluish secondary color gave the stone a richer tone and made the green look greener than a yellowish secondary."   Hofer only sees about 10 per year, although there may be 20 a year on the market.  Whatever the numbers of greens available, they are rarer than Lamborghinis.

Color Grades
Most green diamonds are pale in color with light tones and possess little value.  The most desirable color grades are fancy, fancy intense and fancy vivid green.  Fancy vivids are the most desirable color grade and can sell for two or three times a fancy intense.  A fancy deep or fancy dark green are too dark and sell for discounts.  The two main secondary colors are yellow and blue.   A blue secondary may make the stone appear greener but might also show some grey.  If the stone is a pure blue green, it may look like the Windex blue of a Paraiba blue tourmaline and will be very expensive.  Yellow greens usually sell for discount to the blue greens and pure greens.  When a lab puts grey or brown on a green diamond grading report, the price drops precipitously.

Grading Green Color Problems
Some colored diamond dealers contend green diamonds are harder to grade than other colored diamonds.  Many gem dealers make the same argument about grading green colored stones.  If you see two fancy intense blue diamonds together they will look alike.   It is the also the same for pink and yellow diamonds.  However, this is not true with green diamonds.  You can have two fancy intense green diamonds and they will both look slightly different in color.  This is why each green diamond is priced individually.  Also,  many greens are often cut into radiants to enhance the green color.  You have to look at greens 'upside down' to see if the body color is truly green.

ID Problem
The green color in natural diamonds is caused by the natural radiation of the earth, probably uranium ore, while the earth was forming.  This is why the green color is usually only a few micrometers deep.  This reality makes it difficult for laboratories because treated-green diamonds also obtain their color through radiation techniques.  Since radiation is the cause of color in both cases, it poses an identification nightmare.  Hofer explains, "Mother nature colors green diamonds with low doses of radiation over long periods of time and man uses high doses of radiation over short periods of time.  It was easy to detect the treated greens prior to the 1960s.  They were all zapped with a mossy-like green color.  Now, radiation treaters have refined their technology and the dollars are so significant, unscrupulous treaters can effectively mimic natural green diamonds." 

The stakes are high in this arena.  A natural fancy intense green can wholesale over $100,000 per carat and a treated green is practically worthless.  Hofer states, "What we need to do is build a database of the physical and optical characteristics of known green diamonds and a database of known treated green diamonds.  The problem is the known greens are so rare, the task is daunting."

Laboratories are looking for unique identifying characteristics.  If not present, the labs will call the stone indeterminate or a positive determination cannot be made with gemological data currently available. 

The GIA is ultra-conservative in giving a green a natural designation.  I have heard of a dealer that shipped directly to the GIA 'in situ' a green diamond encased in 48 pounds of dirt from the Brazilian jungle.  As the diamond went from the 'polishing windows'  stage to the final cut stage, the stone was constantly resubmitted to GIA so they were aware of the stone's progress.  The stone ended up with a natural green designation. This is only way to make sure you obtain a natural classification from the GIA.  With any other method you risk the GIA giving the stone every test known to man, and you will probably still will get a not determinable comment. Hofer concludes, "This is complicated science."

Despite the recession, natural green diamonds remain strong in price.  These stones are so rare and are in 'strong hands', downside price action is limited. There are so few public sales, it is hard to track prices, but prices are probably rising.  A carat size fancy green can, wholesale for $60,000-$125,000 per carat. A carat size fancy intense green starts at $125,000 per carat.  In 1999, a .90 carat fancy vivid green, VS clarity sold for over $730,000 per carat at auction.

Consider yourself fortunate if you get to see a natural green diamond.  However, only trade these stones with grading reports from the GIA.  To those lucky enough to own a natural green diamond-enjoy.

International Market Updates  
Burma Auction
The Burmese military held an auction in early August.   All the goods were rough.  The vast majority of the stones were Mong Hsu ruby, peridot, and jade.  The quality of blue sapphire was low.  The three most interesting gemstones sold were:
*  A 13 carat Nanyar ruby.  It would probably cut into a  7 carat gem but would be moderately included with many included crystals.  It was probably a 4/75.  The stone sold for US$260,000.
*  A 7 carat Nanyar ruby that was clean and would probably grade as a 3.5/75-80. It would probably recut to a 4 carat stone.  It sold for US$100,000.
*  A 13 carat Mogok with two surface fractures.  The stone had clarity problems.  It would probably end up as a 7 carat and would grade as 4.5/75.  The gem sold for US$51,000.
The first two stones were bought by a consortium of Indian and Burmese dealers.  They paid US$360,000 and immediately sold the stones to a Bangkok dealer for US$400,000.

Madagascar: Gem industry in need of regulation
Sapphires were first discovered in Madagascar in 1998.  Today, gem shops line the road where just a few years ago there was nothing at all.  One Madagascar politician recently said that just 20 kilograms of sapphires could repay all the country's outstanding international debts.  The Malagasy government wants to clean up the industry, regulate the trade in precious stones and insure that Madagascar reaps the rewards of its gemstones.  The World Bank recently approved a US$32 million loan agreement to help the country manage its mineral resources more effectively.  The Mineral Resources Governance Project will be implemented by the Ministry of Energy and Mines over the next five years.  The main problems are the country's inefficient small-scale mining methods damage the environment, most gems are smuggled out of Madagascar with little economic benefit to the country and the use of children in the mines.  Children as young as eight are being used in mines because they can get into the cramped spaces more easily than an adult.   Therefore, children are often exposed to very serious dangers and can die of suffocation if the mine caves in.

The project aims to reform the sector's legal framework, establish administration offices close to the mines, set up a certification program for dealers and attract more investment from the private sector. A further effort to improve the sector is the creation of an Institute of Gemology-a gemology school which will teach a gemology course and train locals to cut stones.  Of course, all the stones presently are sent to Thailand or Sri Lanka for treatment and cutting.

Sri Lanka
Gem traders say there's been renewed interest in Sri Lanka gemstones. More international buyers have recently been visiting the country than years past looking specfically for unheated gemstones.  Sri Lanka is attempting to 'brand' blue sapphire as its most valuable stone.  The argument is Sri Lanka produces the best sapphire in the world and they should be branded as a purely Sri Lankan product just like Ceylon Tea.   But others say it's a mistake to stress geography instead of quality - especially when many gemstones in Sri Lanka actually come from Madagascar and Tanzania.   Sri Lankan traders visit Africa to buy rough stones which they bring home for cutting and polishing. It's difficult to establish their origin when they leave the island for export.  Further, most dealers believe Burma sapphires are superior gems.  

There are 3,000 gem mines in Sri Lanka but some argue the future of the industry lies in developing a superior processing center for high end precious stones. Sri Lanka needs specialized cutters with considerable experience to compete with the Thai cutters.   The National Training Institute turns out 250 gem cutters a year but says the current demand is huge - for 5,000 additional people a year.

Currently, business is good because buyers are no longer scared away by bomb threats in Colombo while the rival gem centers of Hong Kong and Bangkok are still affected by the negative impact of the Sars virus. Also, the new ban in Burma may lead many Americans to visit Sri Lanka, instead.  Collectors are considering obtaining their new gemstones from this source.

Notable Quotes
ICA Gazette
International Colored Gemstone Association August 23, 2003

"Genis, who is a veteran commentator on the gem trade issues that is known for his emphatic, no nonsense writing and opinion..."

Gem Market News
Volume 22, Issue 5, Part 1
September/October 2003

"Prices for hot pink and fine red spinels have increased significantly over the past two years.  Fine red spinel is increasingly scarce in the market and demand for these untreated gems remains strong.  Origin is playing a big role in the pricing of spinel.  A Burmese deposit produced a very rich red material that is uncharacteristic even for spinel.   Advisors report Myanmar's Mogok is producing some fine pinks and red spinels, but ruby production remains limited at this location.  Spinel-an unenhanced gem-remains a stone to watch for the coming holiday season."

Book Review
Secrets of the Gem Trade
The Connoisseur's Guide to Precious Gemstones.

by Richard W. Wise
Brunswick House Press, Mass.
274 pages, 2003, $79.95

This brand new book contains more detailed information than many introduction gemstone books. Although you will probably not learn any insider secrets in this book, it is worth the price simply for the gemstone photographs.  Many are by the top gem photographers in the world including the Van Pelts, Scovil and Hammid.   The publication has numerous spacing and editing mistakes.  Despite these flaws, this is a welcome addition to any collector gemstone library.   Wise has some new and different ideas to add to gemstone literature.

Precious vs. Semi-Precious
Richard Wise makes the argument that throughout history the concept of which gemstones constitute precious gemstones has changed. For example, in 16th century Italy, diamonds were considered below ruby in the gemstone hierarchy and sold for 1/8 of the price of  a  ruby.  In the 19th century, gemstones were divided into precious and semi-precious categories. He contends the division of gemstones is wrong and  the result of market snobbery.  He makes a strong case that many new semi-precious gems, such as tsavorite and tanzanite, were never even discovered 50 years ago and are more beautiful than many of today's precious gemstones.

Country of Origin
Wise also contends country of origin is based upon the conservatism of the professional gem dealers who control the market.  He believes they always fall back on the old sources as being better than the newer sources.  For example, all things being equal, it is agreed upon by those in the trade, a Burma sapphire will sell for more than a Ceylon sapphire and a Kashmir sapphire will sell for more than a Burma stone.  Of course, a "Classic"  Mogok Burma ruby will also sell for a premium to a Thailand ruby.  Wise believes you should look and collect stones from all areas, irrespective of country of origin.  He argues there are great Thai rubies and bad Burma rubies.  Although this might be technically correct, few argue a top Thailand ruby comes anywhere near a top "Classic" Mogok Burma.  I do not believe this is due to being conservative, but the reality of which stone is generally superior.  Which one would you rather have?

According to Wise, "beauty drives demand and rarity drives price."   He argues there are two types of rarity, actual and apparent.  Gems that are found in small numbers are actually rare.  Gemstones that are in high demand and relatively numerous are apparently rare.  For example,  white diamonds are apparently rare because the annual production is about 120 million carats.  Unless a stone is in demand, the actual rarity does not really matter.  For example, taaffeite or Benitoite are actually rare but so few people trade in the goods the rarity is moot.  The best stones to collect are stones in high demand and short supply.

The new 4C's
The 4C's of diamonds and gemstones are color, cut, clarity, and carat weight. Wise wants to throw out the carat weight parameter and substitute crystal.   First, let's briefly discuss the 3C's.  Of course, the first C is color.  The author spends a great deal of time explaining the Munsell color theory.  Collectors who utilize the AGL grading system may get confused throughout the book by Wise's use of percentages.  For example, when describing the color of sapphires,  Wise may use 85% blue and 15% purple to define a top gemstone.  When discussing ruby, he may describe a pigeon blood ruby as being 85% red.  Do not confuse his percentages with the AGL color scan.  As many know, 70% primary color is about as good as you will receive at the AGL.  The same is true with his discussion of tone.  He states the optimum tone for ruby is 80 and sapphire 85.  Do not be confused by these numbers if you use the AGL system.  The second C or the cut section is very well done and you can learn a great deal about this subject. The third C is clarity and Wise accurately states clarity is an important factor in determining the country of origin of precious gemstones.

The new fourth C, or crystal, is where his proposition gets a touch dicey.  Wise has a hard time defining  exactly what he means by crystal.  His basic definition is the ultra-transparency of a gemstone.  He sites historical references of this gemstone attribute and explains how Golconda diamonds are more pure than diamonds from other localities.  He argues that some gemstones are clearer, cleaner, or crisper than others, yet this is not directly related to clarity.  He contends a stone "having a good crystal" will not lose it's beauty in various light sources.  He uses Kashmir sapphire as an example of a stone that is not flawless, having microscopic inclusions which creates a sleepy appearance, yet the color still remains strong in all lighting conditions.  One problem with Wise's fourth C is the term is often misused by wholesalers.  They tend to describe all their stones for sale with this term.   It is often confused with brilliancy and clarity. Also, he recommends no way to quantify this aspect of a gemstone.  Maybe it could be defined upon a 1-100 scale, but a great deal of research would have to be done in order to even attempt to quantify this subjective parameter. 

Multicolor Effect
Wise wants to throw out the term dichroic effect and substitute multicolor effect. He describes how the face of a gemstone can be a mosaic of colors. Wise defines the multicolor effect as a gemstone having the tendency of showing two or more colors or tones at the same time.

Regarding collecting, the author correctly maintains you can only become a connoisseur by constantly viewing and comparing gemstones.  He advises collectors to not buy parcels of gemstones.  He also mentions buy only the best if you are going to invest in gemstones and lists a few American gemological labs.  He states labs are good buying points for a collector but you should not 'buy the cert.'  These are trade secrets? 

Colored Diamonds
Probably one of the best sections is fancy colored diamonds.  If you are considering buying a colored diamond, this section may be vital to you.   He explains the GIA-GTL grading system in a logical and well thought out manner.  He also discusses the weaknesses of the grading system and how you need to look at a fancy colored diamond and not 'buy the cert.'

Even though this section is thin, the author argues for full disclosure of all treatments and collectors should ask for a laboratory report on important purchases.
The bulk of the book are mini-profiles of the numerous  colored gemstones and diamonds.  The main sections are alexandrite, beryl, corundum, chalcedony, garnet, pearls, topaz, opal, tourmaline, spinel, tanzanite and the eight main colors of colored diamonds.  You can learn about the history, sources, colors, crystal, enhancement, rarity and other nuances of  these gemstones.  This section can be used as a reference book, and you can simply read the parts you are interested in.

It is obvious Richard Wise has a love and passion for gemstones.  This radiates throughout the book.  Highly recommended.
You can purchase this book on-line in the bookstore.

In the News
International Herald Tribune -Gem Investing
Jewels in the portfolio
by Holly Hubbard Preston IHT
Saturday, August 2, 2003
Patience and deep pockets required

The gem dealer Robert Genis tells of a client, a former technology executive who sold most of his investments at the top of the market. The client recently asked Genis to find him unheated Burma rubies, reasoning that $10,000 invested in such stones "would not be worth $1,000 tomorrow, like some of my technology stocks that are down 90 percent."

Precious gems, long sought after for their beauty and collectible status, take on a luster in a glum economic marketplace. Easily storable, highly liquid and always in demand, top-quality sapphires, diamonds, emeralds and rubies - known as the big four - have earned a reputation over the centuries for being sound investments.

Genis's clients are high-net-worth individuals who routinely spend anywhere from $10,000 to hundreds of thousands for a single stone.

Top-quality Burmese rubies that are truly natural, meaning they have not been subject to heat treatments or other types of color enhancements, have not fallen in price since 1988, according to Genis, the publisher of The Gem Forecaster, an online trade newsletter that tracks prices. Among the very best rubies, Genis said, "double-digit price increases are common."

Larry Myint, a Burmese dealer who relocated to New York 10 years ago, said that unheated, natural Burma rubies and sapphires were getting ever rarer. Myint, who travels to Burma at least four times a year to buy gems, said that many of the country's top-producing mines "are nearly exhausted," while many others have shut down completely.

The purchase of an unheated Burmese ruby can run an investor $50,000 or more per carat. Still, at the resale level, Burmese rubies, along with other prized gems, are commanding staggering prices. In May, the auctioneer Sotheby's sold a certified 5.33-carat oval-shaped Burmese ruby, which it initially estimated at $250,000, for $359,000. Not including fees, that works out to $67,355 per carat. In 1988, Sotheby's sold a comparable 5.62 carat cushion-shape Burmese ruby, included in a Cartier-made diamond ring, for $58,700 per carat.

Similar pricing trends are to be found for untreated emeralds, for unheated Burma or Kashmir sapphires and for diamonds, in particular natural, fancy colored diamonds, in the most rare hues of red, green, pink, and blue.

Lisa Hubbard, director for international jewelry sales at Sotheby's, said that emeralds were valued by the auctioneer at anywhere from $500 to $100,000. Of the big four precious gemstones, they probably represent the softest part of the market. Hubbard said there is no dearth of emeralds, while rubies are less plentiful.

There are a number of rare semiprecious stones, such as tsavorite, demantoid garnet and red and blue spinels, that have some potential to appreciate. But Hubbard warned that investors should understand that per carat prices are much more volatile and in most cases drastically lower compared with the prices commanded by the big four.

"Peridot, amethyst, tsavorite are all extremely attractive," Hubbard said, but "in the end they are still semiprecious stones."

There are exceptions. Anyone in possession of a large demantoid garnet, a size that is rare for this brilliant green-hued, diamond-like stone, could see tremendous potential upside at auction, Hubbard said. Sotheby's sold a five-carat demantoid garnet five or six years ago, Hubbard said, that was initially estimated at as much as $3,000 per carat. It sold for $25,000 per carat at auction, which she said was comparable to what a top-quality precious stone might have commanded.

Such examples are few and far between. While it may make sense for a collector to buy a demantoid garnet or tsavorite for its beauty, for pure investment purposes, Hubbard advised sticking to the big four precious gemstones, particularly those that are certified as "natural" or "untreated."

Harry Winston, proprietor of the New York-based jeweler House of Harry Winston, echoed that advice, adding that he did not see the ranks of the big four expanding soon. Among these "blue chips," Winston noted a shift in customer demand away from colored precious gemstones toward fancy colored diamonds. In terms of both value and growth, fancy colored diamonds are offering perhaps the best return on investment. In June, Sotheby's sold a fancy 7.21-carat vivid pink diamond through its Hong Kong office for $2,951,950, or nearly $410,000 a carat. The Sotheby's record for a white diamond was set in May 1995 in Geneva, when a 100.1-carat stone fetched $16,548,750, or just over $165,000 a carat.

"This is not a trend - it is about rarity," Hubbard said.

Not every mine produces colored diamonds, nor are sales of such stones controlled by De Beers, which until recently all but monopolized the white diamond trade, she said.

Prices for white diamonds have been on a slump since the 1980's, as have prices for gold and silver. What's to say that other precious stones, as a hard asset, won't do the same?

Genis, who has studied the pricing trends of all three categories, said that because the supply of unheated and unenhanced colored gems, including diamonds, is limited, downside movement in collector-quality gemstone prices also tends to be limited. Likewise, inflation, when present, is a positive for gems, he said, as they are viewed as true wealth.

But among the big four, of course, there are differences in quality - and quality is critical to value.

H.A. Hänni of the SSEF Swiss Gemological Institute said, "There are thus rubies of bad color, manufacture, small size, which thus would never be respected as 'gemstones' in the sense they could be rare, beautiful, and expensive." Even at his level, he added, "We have unfortunately seen many 'paperweight' emeralds which were insured for millions."

Trying to determine the relative value of a precious stone, including the most certified, can challenge even the trained eye. Unlike the white diamond industry, Genis noted that there were less standardized pricing indexes for colored gemstones and fancy colored diamonds. Colored gemstones are typically graded on the four C's: color, cut, clarity and carat size, with color generally accounting for half of the value. The origin of the stone and its natural condition must also be factored in.

Though it might be tempting to purchase a stone from its source, Genis said that an investor should think twice about doing so. His clients used to pay to send him to visit dealers in key gemstone-producing locales around the world. Genis no longer makes such trips.

"Those dealers knew I was on the clock, paying for hotels and under pressure to buy," he said.

Now suppliers send him stones from around the world that he can evaluate better with his own lights and master stones. He and his clients, Genis said, get much better deals as a result. Getting a deal is key. As Antoinette Matlins, a Vermont-based author of several books on collecting gems and jewelry, said, "The closer to wholesale you buy, the more immediate your return on investment will be."

One of the best places to do this, Matlins said, is auctions, where she said that initial valuations were often low-balled to protect the auction house.

Though investors have been known to quickly sell their assets to take a profit, Hubbard at Sotheby's, who has 25 years of experience in the business, said investors in general needed to hold their gems a minimum of 10 years to maximize returns.

How much of one's portfolio should be tied up in an investment? Gemstones, like gold and silver, have long been seen as hard assets, worthy of at least a limited degree of investment. One collector interviewed for this story, a former securities executive, advised holding no more than 10 percent of one's investment portfolios in gemstones, loose as well as stones incorporated into jewelry.

"Family gems are a liquid asset," she said. "Think of all the people who have started over, after losing everything, using those gems."

The International Herald Tribune
Romancing the stone: precious tips
by Holly Hubbard Preston
Saturday, August 2, 2003

Investors thinking about parking part of their portfolio in gemstones will spend as much time doing due diligence as they would for any other asset category, maybe even more.

That is the opinion of a former securities executive turned avid gemstone collector. The collector, who requested anonymity, readily admitted to spending two years doing research before he could work up the courage to make his first major purchase, a $75,000 stone. His portfolio is now valued at more than $1 million.

Gemstones are a complicated investment play. With that in mind, Lisa Hubbard, executive director for international jewelry sales at Sotheby's, offered this emphatic advice to would-be gemstone investors: "If you are talking about investing, you have no business dealing in anything other than the best level that you can afford."

Even the most beautiful Thai rubies, for example, will generally not command the per-carat price at auction that a much rarer Burma ruby will. The same goes for an African emerald compared with one from Colombia, consistently the source of the world's finest emeralds.

Even within those guidelines, identifying the best can be an immense challenge.

Color, particularly natural color, is the key. According to Antoinette Matlins, a gemologist in Vermont, natural-colored gemstones and natural fancy-colored diamonds are "most prized" among collectors and offer the best long-term values. Matlins estimated that natural, untreated colored gems are worth 10 percent to 20 percent more than precious stones that have been treated or whose color has otherwise been enhanced.

That differential, she added, is "nowhere near" what she thinks it will be in another five to 10 years.

Since the 1960's, Matlins said, the gem trade has been trying to keep up with demand for precious stones by taking lesser gems and exposing them to heat and other treatments that would brighten or even change their color while removing inclusions that affect clarity. Until about five years ago, she said, these treatments often were not disclosed. With attention and demand shifting to natural or untreated colored stones, Matlins said, it is more important than ever to have a stone thoroughly evaluated before making a purchase.

Cap Beesley, president of American Gemological Laboratory in New York, said that more often than not, clients come to him for evaluations after they have parted with their money, sometimes more of it than they should have.

He advises would-be investors to always ask to have a stone sent to a lab of their choice before making a purchase. If the dealer or supplier balks at this, Beesley said, a buyer should suspect the quality of the stone.

The cost of lab evaluations at American Gemological ranges from $75 for a basic identification to $185 for a full grading report.
An example of a detailed, color-grading report can be found in The Gemstone Forecaster, an online gemstone trade journal that is published by Robert Genis (www.preciousgemstones.com). A sample report from Beesley's lab, with an explanation of how to decipher it, is featured on the site.

But whether you should buy gemstones at all depends on how you perceive their value, said Denny Cummings, a wealth management adviser at Merrill Lynch in Chicago.

"You first have to determine what you hope to achieve by investing in gemstones," he said. "Enjoyment of owning the stones should be a significant part of your motivation, since they don't provide current income and may or may not enjoy price appreciation."

Even if they do appreciate, the spread between the bid and ask price "is often a problem," he said. "Unlike stocks, where you have an efficient high-volume market where the spread is rather narrow, the spread can be much wider with hard assets like gemstones." Given these dynamics, he warned, someone buying gemstones as a hedge against inflation could end up buying high and being forced to sell low.