Holly Hubbard Preston ( International Herald Tribune ) writes:
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 former securities executive turned avid gem collector. The collector, who requested anonymity, readily admitted to spending two years doing research before eh could work up the courage to make his first major purchase, a $75000 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 ten years. Since the 1960s, 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 that 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 (http://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 wealthy 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.
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