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Jewels in the Porfolio
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."
- By Holly Hubbard Preston International
Herald Tribune 2 Aug 03
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