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
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."