Investing in Gems for Profit

Investing in precious stones may seem like a good idea, but is it really such a sparkling venture? Though the majority of industry experts and analysts are wary of encouraging speculation in precious stones, record prices are currently being set for diamonds and precious gems.

"The jewelry market is on a great high and is enjoying a tremendous buzz," says Rahul Kadakia, head of jewelry for Christie's Americas, At Christie's fall auction held last month "The Rose of Dubai", a 25-carat pink diamond, sold for $6 million - twice its estimated sale price.

According to one long time diamond insider, however, investing in gems for profit comes with a variety of problems. Diamonds are not a liquid asset and there is no guarantee that even the most beautiful of gems will actually increase in value. Nor is there a platform, he says, for individuals buying and selling stones or a comprehensive certification system for valuing gems, so dealers' valuations can vary considerably.

For this reason, says the diamond insider, the act of buying the precious stone is similar to the act of investing in art. "It is difficult to put a price on it; it's not easy for the consumer to know the value." His advice? Stay away from precious stones if the aim is to use them solely as a form of investment.

If, however, the consumer is willing to tie up their money in precious stones, they should realize that they are unlikely to see any real profit for at least five years.

Furthermore, when investing in gems, the expert urges, go for an expensive diamond. Other types of precious stones, he asserts, offer worse returns than diamonds because there is a smaller market and an even less coherent classification system for such gems.

According to a recent AP article, such wariness is not uncommon. Ricky Grunden of Grunden Financial Advisory Inc. in Denton Texas says that if he had a client who was interested in investing in jewels, he would do everything he could to talk them out of it. "It's extremely difficult to convert these things into return on investment," he argues.

IDEX Online Research analyst Ken Glassman fully concurs. "No one, and I mean no one, should buy a diamond as an investment. I repeatedly told that to clients when I was in the brokerage business and I continue to tell people that now. I remind them that they should own a diamond because they thought it was beautiful and a symbol of their love. They should never buy a diamond for investment purposes."

Others in the industry, however, are less cautious. "This is the biggest interest I've seen since the late 70s and early 80s, without question," asserts Tom Cloud, a gem-investment manager from Duluth, Georgia.

Says AP, Cloud is receiving calls from financial planners who want to direct their clients into diamonds and gemstones as a way of diversifying their portfolios. "I don't think people should put big percentages in that," he says, "but there are some great profits to be made, and there will be over the next few years."

To discover the profit potential of a diamond you already hold, use an industry benchmark pricing tool such as the IDEX Online Diamond Prices Index.

Source material reprinted with permission from IDEX Magazine (http://www.idexonline.com/).