Gems & Jewelry

I was on eBay the other day looking for a profitable way to use a $5 coupon the online auction house had been gracious enough to give me.  As I was browsing through the rough jade listings, I made a shocking discovery.  Much to my dismay, I found that one of my favorite rough jade dealers – Paul’s Rok Shop, located in Lake Arthur, Louisiana – was closing.

This gentleman was a dealer in all of sorts of lapidary slabs, but seemed to specialize in Central American jade, aka Guatemalan jadeite jade.  This was quite fortuitous, as I believe that rough jade blocks and slabs are an intriguing tangible investment alternative to precious metals.  And out of all the world’s jades, I find those from the Americas – jadeites from Central America and nephrites from the Pacific Northwest and California – to be the most intriguing from an investment perspective.

These North American-sourced jades are rarely subjected to the same harsh enhancements that are commonly applied to Burmese, Chinese and (occasionally) Russian jades.  So when you buy North American jades, you are almost assured of getting fully untreated, completely natural stones – a tremendous advantage in a world dominated by polymer impregnation, artificial dyes and other scummy gemstone treatments.

But you won’t be getting them from Paul’s Rok Shop, at least not according to the poignant message he left in his last listings:

“After 13 years on eBay, I am shutting down my rough rock sales here.  [It’s] just not worth my time to be here [on eBay] anymore.  I will not be relisting any rough rock at all after May 31st [2019].  I suggest that you get what you may be interested in before the end of the month.  If things turn around in [the] next couple years, you may see me again.  To those of you who have followed and bought from me over the years, I am grateful.”

If you have any interest in purchasing rough Central American jade, I urge you to stop by Paul’s Rok Shop before it closes for good.  He has been aggressively marking down prices in an attempt to move his remaining inventory and there are great deals to be had.  Unfortunately, if you are reading this any article any later than June 2019, I doubt he will have any active eBay listings left.

Out of this sad event springs two topics that I want to discuss.

The first is Central American jade.  Jade is a gemstone that has been revered in many cultures for thousands of years, but curiously not in the West.  The ancient Chinese loved it.  The Pre-Columbian civilizations of the Olmec, Maya and Aztec loved it.  The indigenous Maori people of New Zealand loved it.  But we Westerners tend to shrug our shoulders at the green wonder stone.

Why is that?

I believe it is largely a question of exposure.  High quality jade deposits are not found in Europe, meaning that ancient European civilizations never saw the stone at its best.  In contrast, East Asian, Meso-American and New Zealand peoples had ready access to fine jade which left an indelible mark on their respective cultures.  This reverence for the beauty and utilitarian value of jade eventually elevated the gem to ceremonial and even monetary status, but only in those societies that had access to it.

Jade was so important to these ancient civilizations that I believe archeologists and historians should make room for a “Jade Age” sandwiched in-between the Neolithic and Bronze Age periods.

Furthermore, many modern-day Europeans and Americans have simply never seen good quality jade before, much less held a fine rough jade specimen in their hands.  Most Westerners’ experience with this legendary material has been via poor-to-mediocre quality jade jewelry that has undoubtedly been treated to within an inch of its life.  And that’s assuming they’ve beheld real jade at all, and not some inferior imitation or simulant, like serpentine, aventurine quartz, maw-sit-sit, etc.

When jade is treated, the properties of the stone often fundamentally change.  Acid or alkali baths leach out stains and impurities, but also render jade brittle and susceptible to discoloring over time.  The dyes, polymers and paraffins injected back into the treated stones in an attempt to make them salable might render these treated jades superficially attractive, but don’t restore the superlative properties of true, untreated jade.

On the other hand, genuine untreated Central American jade is a marvelous thing to behold.  At a distance, it appears as if it might be some impossibly soft material – satin…moss…even Jell-O.  But the truth is that real jade is both harder and tougher than steel.  It is an extraordinary gem created under the tremendous geological pressures found almost exclusively at tectonic plate boundaries.

In spite of its toughness, handling jade is an intimately tactile experience.  The stone persistently whispers for you to gently caress it.  And when you do, real Central American jade rewards you with a heft, solidity and glass-like smoothness that seems otherworldly.  It is almost as if some super-advanced material from the distant future was transported back in time to amaze and astonish us in the present day.

As the ancient Chinese philosopher Confucius once stated quite perceptively, jade possesses “perfect compactness”.  This is due, no doubt, to the gemstone’s unique, interlocking micro-crystalline structure.

And the colors!  Central American jade comes in a range of attractive shades, including “Maya mint” green, “Olmec” blue-green and mottled deep-green “jaguar jade”, just to name a few.

Simply put, you have to actually see and hold a piece of real Central American jade to truly understand its allure.  Mere words, regardless of how poetic they are, cannot hope to do that transcendent moment justice.  Jade’s appeal is very similar to that of gold and silver.  Once you place a piece in the palm of your hand, you immediately and viscerally appreciate how valuable and desirable this precious material truly is.

And this leads me to the second thing I wanted to talk about: the loss of yet another small business.

I have written before about the troubles facing physical antique stores.  I have also written about the decline of American retail, with an emphasis on the closing of mom-and-pop shops.  I would like to say that these trends are unrelated to each other.

Unfortunately, I cannot.

Ever since the 2008 Financial Crisis, the United States (and most of the world for that matter) has been experiencing a soft depression.  These unrelenting economic travails have robbed middle class households of much of their discretionary spending power.  Money that would have been spent on art, jewelry and antiques simply never made its way into the hands of the middle class.

As a result, the many small businesses serving these industries have suffered.  The loss of Paul’s Rok Shop is just the latest in a long parade of such business closures.

There is one silver lining to this dark cloud, albeit with strings attached.  As art, antique and gem dealers liquidate, they often heavily discount their inventory.  This is a tremendous opportunity for disciplined connoisseurs and investors to buy quality tangible assets at reduced prices.

But it is important to keep in mind that prices are always lowest right before the lights go out.  And it takes much, much higher prices to induce a future entrepreneur to turn the lights back on.  In other words, enjoy the bittersweet deals on art, antiques and other tangible investments while you can.  Once they’re gone, they will only reappear when there is far greater profit to be had.

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One complaint often leveled against gold and gemstones is that they have no intrinsic value and are therefore “fads” or “speculations”.  A perfect example of this lunacy is an article I recently read titled “Gold Is No More of an Investment than Beanie Babies“.  The author, a professor of economics at Pomona College named Gary Smith, unequivocally argues that gold, gems and other valuables aren’t assets because they don’t pay dividends or interest.

All I can say is good grief!

Sometimes economic professors get so caught up in their textbooks and theories that they forget to look out their ivory tower windows into the real world.  So let’s try to answer the question of whether or not gold and gemstones have real intrinsic value.

No, gold and gemstones do not produce cashflow, but not every asset does.  There are about 4,800 U.S.-listed equities that don’t currently pay a dividend.  In addition, there is a type of debt instrument called a zero coupon bond that pays its par value at maturity, but makes absolutely no interest payments until then.  Warrants, options and futures also pay no income.

As you can see, demanding that a security pay a stream of cash flows in order to be considered an investment is an excessively restrictive definition.  In other words, all things that pay income are investments, but not all investments pay income.

But this doesn’t really definitively answer our question.  Lots of things don’t pay interest or dividends, but only a very small proportion of them could convincingly be called investments.  Maybe examining the meaning of the word “intrinsic” can help us make a determination.

According to Dictionary.com, the definition of the word intrinsic is: “Belonging to a thing by its very nature: [for example] the intrinsic value of a gold ring.”

We’ll set aside for a moment the fact that the dictionary definition of the word intrinsic specifically references gold.

When critics declare that gold and gemstones have no intrinsic value, what they are really saying is that they have no practical uses.  In other words, when stripped of their decorative, monetary or status-enhancing applications, gold and gems (allegedly) possess no industrial usefulness.

First, I will comment that it seems a little unfair to discount their primary strengths.  It is like asking what good cotton is if you can’t weave it into fabric.  But even with this considerable handicap, gold and gemstones still have a significant number of uses, thus endowing them with substantial intrinsic value.

For starters, gold does pretty much everything copper can do, except better.  Other than its exorbitant cost, there is no reason you couldn’t make all the plumbing and electrical wiring in your house out of gold.  And it would last pretty much forever, to boot.

Of course, gold has a lot of other uses besides giving copper an inferiority complex.

Almost every cell phone, laptop and desktop computer on the planet contains small amounts of gold, where it is used to plate vital electrical circuitry.  This is because gold does not tarnish or corrode, even under the most hostile environmental conditions.  It is safe to say that the computing revolution of the past few decades would have been impossible without gold.

Gold is also used in dentistry, where its chemical inertness and durability make it a perfect material for filling cavities.

Even the medical profession has adopted gold for some specialized situations.  The gold-based compounds auranofin and sodium aurothiomalate are sometimes used to treat rheumatoid arthritis.  In addition, tiny radioactive gold seeds have been implanted into cancerous tumors, helping to shrink them.

Space exploration is another industry that is heavily dependent on gold.  It is not only found in the computer components of every satellite and spacecraft, but is also lavishly used in orbital telescopes and space suits.  These gold coatings reflect solar radiation, thus helping to regulate temperatures and prevent heat damage.

Glassmaking also relies on gold.  A highly prized type of deep red glass called cranberry glass or ruby glass can only be made by dissolving gold salts in a pool of molten glass.  High-rise skyscrapers also rely on an ultra-thin coating of gold on their windows to help with climate control.

Much like gold, gemstones often get a bad rap as unnecessary baubles that have no intrinsic value.  But this ignores the modern world’s reliance on their unique physical and optical attributes.

First up are diamonds.  These covetable gemstones are the unsung all-rounders of the gem world.  Diamond’s superior hardness and toughness means that it is perfect as an abrasive or cutting edge.

Diamond drill bits are a mainstay of the oil, gas and mining industries.  And construction workers frequently use diamond-impregnated saw blades to quickly and easily cut concrete.

Another, less well-known application is the diamond-scalpel in medicine.  Diamond scalpels are used in any situation where an ultra-sharp, long-lasting blade is necessary, like eye surgery.

Perhaps diamond’s most interesting scientific use is the diamond anvil cell.  This high-tech tool skillfully exploits the tremendous toughness and near perfect transparency of diamond in order to crush a test sample between two opposing diamonds.  This allows for massive pressures and temperatures, similar to those deep within the earth, to be replicated in the laboratory.

Sapphires are another gemstone that has widespread industrial applications.  Titanium-sapphire lasers are commonly used in spectroscopy, LIDAR and other research applications.

But sapphire also has more down to earth uses, as well.  It is often employed anywhere a small, perfectly clear window of extraordinary toughness is needed.  For example, many luxury watches have sapphire crystals to protect their dials.  And Apple’s iPhone 7 made news when it was announced that it would ship with a sapphire camera lense.

Even more prosaic gems like garnet and quartz have extensive industrial uses.

Garnet sandpaper has been used as a cheap and reliable tool by woodworkers for many decades.  Indeed, it can be employed anywhere that a super-hard abrasive isn’t needed.  For more demanding applications, stepping up to aluminum-oxide (which is just another word for sapphire!) sandpaper makes more sense, although it is slightly more expensive.

Quartz possesses an unusual property known as the piezoelectric effect.  This means that it turns mechanical pressure into a small electrical impulse and vice-versa.  The most practical use for this strange property is in time-keeping.  As a result, a tiny quartz crystal resides in the heart of every quartz watch and clock on the planet.

I suppose that the biggest complaint a skeptic could have about the intrinsic value of gemstones is that their industrial roles are typically fulfilled by laboratory-created synthetic gems.  But I don’t think this takes anything away from the desirability of naturally mined stones.

To the contrary, naturally mined gems are merely being employed in their highest and best use.  Highest and best use is an economics concept that basically states that while an item might have many possible uses, it will tend to be primarily employed for its most valuable purpose.  And it will also be bid to a price commensurate with this highest and best use.

The fact is that the highest and best use for gold and gemstones are as jewelry, decoration and money.  This might confound and disturb uneducated critics, but thousands of years of human history confirm it.

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