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A Brief History of Gemstone Valuation

A Brief History of Gemstone Valuation

Mention the word “gemstones” and it immediately brings to mind images of glittering riches.  Gems have been a byword for wealth in popular culture for hundreds of years.  So it isn’t surprising that many people think the gemstones that are most well known today – rubies, emeralds, diamonds and sapphires – have always been the most valuable.  But the history of gemstone valuation is not so straightforward.

Instead, we find that the historical desirability of various gems was dependent on a range of factors, including local availability, rarity, physical properties and, oddly enough, advances in science.  In his book “Natural History” written in the 1st century AD, the ancient Roman naturalist Pliny the Elder states that agate, a banded variety of quartz, was “formerly held in high esteem, but is not so now… (because it) has since been discovered in numerous other localities.”  This is, to the best of my knowledge, the first example of a once rare precious gemstone being devalued when new, large sources of material were discovered.

Agate wasn’t alone in this misfortune, either.  All members of the quartz group, such as cornelian, chalcedony, jasper, rock crystal and amethyst, were highly valued in ancient times.  But they gradually declined, in both respect and price, over the centuries as new deposits were exploited and long distance trade routes from Asia and sub-Saharan Africa expanded.  By the Middle Ages, the quartzes were no longer considered top tier gemstones in Europe.

There was one notable exception to this, however.  Amethyst, with its maddeningly deep purple hue – the same color valued so highly by royalty – remained a very expensive stone into the 16th century.  During the Renaissance, fine Indian amethyst traded for fully half the price of precious sapphire.

But the Age of Discovery, the period from the 15th to the 18 century when European explorers sailed to all corners of the globe in search of new lands, was not kind to the reputation of many gemstones.  Amethyst, the most valuable of all the quartzes, was one of those gems negatively affected.  Although it remained relatively scarce until the early 19th century, massive Brazilian discoveries flooded the market in the 1830s and 1840s, causing the value of amethyst to collapse.  Its price never recovered.  Even today it is possible to buy good quality amethyst for only a few dollars a carat.

Another ancient stone undone by the advancement of science was the highly prized carbuncle.  In ancient Greece and Rome, the term carbuncle referred to any deep red gem.  It is theorized that garnets, rubies and red spinels were all interchangeably considered carbuncles during this period.  However, as science progressed, it became obvious that these gems were actually distinct types of stones with unique physical properties.

This caused a divergence in the prices of these gems types.  Garnet, being softer and more common than its two look-alikes, rapidly dropped in value, while the superior ruby became the gem of kings.  However, ruby and red spinel, which are closely chemically related, were still confused with one other right into the early 19th century.  It was only after this time that the two doppelgangers were definitively, scientifically recognized as separate gems.  Subsequently, many famous “rubies” set in the crown jewels of European monarchs were discovered to actually be red spinels, thus boosting the reputation and value of real rubies even more.

Some things in the world of gemstones, though, have remained fairly stable for centuries.  Benvenuto Cellini, a renowned Italian Renaissance goldsmith from the 16th century, wrote in his memoirs that ruby was considered the most valuable of all gems.  Next was sapphire.  Diamond, although far rarer during the Renaissance than today and largely reserved for nobles, was only ranked third.  During that period, a fine diamond was only worth an eighth of what a similarly high quality ruby would bring.

Cellini’s list of relative gemstone valuation compares favorably to our “big four” gems of today, which are, in order of descending value: ruby, emerald, diamond and sapphire.  But even these rankings are a closely fought thing.  Emeralds and rubies have vied with each other for the top spot throughout the 20th century, trading place several times.  And white diamonds are just barely holding onto the number three slot.  Currently, a top quality, one carat, Burmese blue sapphire is nearly equal in value to a flawless, perfectly colorless, one carat diamond.

The latest development in the long history of gemstone valuation has been the rise of new, ultra rare gems.  These include stones like colored diamonds, alexandrite, demantoid garnet and Paraiba tourmaline.  All of these “new” gems are exceedingly beautiful, extremely rare and often exorbitantly expensive.  It is not unusual for fine examples of these stones to exceed the “big four” gems in terms of price per carat – sometimes by significant amounts.

Although fancy colored diamonds were known for centuries before the modern era, they were so rare and unusual that they were thought of as curiosities for most of that time.  Both alexandrite and demantoid garnet, first discovered in the mid 19th century, likewise remained exotic oddities for many decades.  It was only in the late 20th century that these extraordinarily rare stones, along with more recently discovered ultra rare gemstones like Paraiba tourmaline, have become quintessential luxury objects gracing the fingers and necks of billionaires around the world.

Although gemstone valuation has been constantly evolving over the last two millennia, I believe we have reached a point in history where major re-rankings will now occur much more slowly.  Most of the world’s major gem fields have been discovered already, so it is increasingly unlikely that the market will suddenly be flooded by a large quantity of any given gem.  Science has also progressed to the point where different types of gems are no longer confused with one another.  Of course, relative gemstone valuation will continue to change in the future as certain colors or looks fall into or out of style.  But I think the chances of major gems, like ruby, sapphire or emerald, devaluing severely are nil.

Investing in Contemporary Art Direct from the Artist

Investing in Contemporary Art Direct from the Artist

If you’ve spent any time reading AntiqueSage.com, you know that I have a strong preference towards antiques as investments.  Antiques are works of art that have stood the test of time, having been seasoned over decades, if not centuries.

This process tends to weed out specimens constructed of inferior materials as well as fad-based items, leaving a higher percentage of investment-grade examples.  So when I’ve occasionally wondered to myself if successfully investing in contemporary art or new luxury goods by buying them directly from the artist or craftsman is possible, the answer has always been “No”.

But then I had an experience on Etsy that changed my mind. I was perusing the online, peer-to-peer, handmade/vintage centric website for antique jewelry when I stumbled across something rather astonishing: a new piece of jewelry that was investment grade and sensibly priced!

This was something I didn’t expect.  Normally, luxury goods are far too expensive when new to make reasonable, much less good, investments.  The average markup over cost normally runs 100% or even higher.  It is easy to see under these circumstances why buying new luxury goods for investment purposes is a fool’s errand.  It is far better to buy them in the secondary market for discounts of 50% or greater.

And yet here I was, staring at a beautiful investment grade, abstract modernist pendant that was selling for only $365.  In cases like this, calculating an estimate of the item’s intrinsic value can be a useful starting point.  I immediately began to crunch the numbers.

The jewelry had modest intrinsic value from its precious metal content – about $30 or so.  It was also set with two natural sapphires: a small, round-cut, beryllium-diffused orange sapphire and another, much larger natural, purple-pink, marquise-cut sapphire.  The beryllium diffused stone was only worth $8 or $10.

The 1.27 carat purple-pink sapphire was the real treasure here.  Even at a lowball price of $200 a carat, the stone was still worth over $250 by itself.  Altogether, the intrinsic value of the piece was around $300 using fairly conservative assumptions.  As an added bonus, the jewelry had been cast in a cuttlebone mold, an ancient technique that destroys the mold in the casting process.  As a consequence, this pendant was one-of-a-kind, a factor that significantly enhanced its desirability.

The aggregate material value of $300 meant that the piece was only selling for about $65 in excess of its intrinsic value.  This modest $65 premium reflected both the item’s considerable artistic merit as well as its undeniable usefulness as a piece of jewelry.  I was very interested.

But another question quickly popped into my head.  How could the selling artist afford to let the piece go for so little money, especially after Etsy takes its cut?  He must have spent a minimum of several hours designing and crafting this pendant, and a wage of no more than $15 or $20 an hour at best for his considerable skills seemed unrealistically low.

So I read up on his background, discovering that he was more or less an old hippy from Southern California.  He had started out in the mid 1970s cutting gemstones, eventually stumbling into gold working and then full-fledged jewelry making.  I surmised that he probably had low expenses – no million dollar mortgage or $1,000 a month student loan payments here.  It is also possible that he scored a deal on the sapphires used in the pendant, given his extensive background with gemstones.

In any case, I was satisfied that the jewelry was as represented and a bargain at $365.  I wasn’t disappointed either.  After purchasing it, the pendant I received was a wonder of modernist design – at once sleek, organic and, above all, stunningly beautiful.  It was a remarkable find.

This pendant changed my thinking about the viability of investing in contemporary art direct from the artist.  I now think it is possible, although still very difficult.

New art is disadvantaged versus antiques in several ways.  First, it lacks seasoning, which helps reduce undesirable specimens.  Second, it is often overpriced, rendering future investment returns poor, or even negative.  Finally, when scrutinizing contemporary art I believe it is imperative to de-emphasize the artist and focus very intently on the quality and materials of the work itself.

Ultimately artists – especially new, unproven artists – don’t sell art.  Beauty and fine workmanship do.  In spite of these drawbacks, buying contemporary works direct from the artist may be one of the most overlooked ways to invest in art today.

A Recent Trend in High Intrinsic Value Antique Jewelry

A Recent Trend in High Intrinsic Value Antique Jewelry

I have been interested in antique jewelry since the late 1980s.  Early during that time I developed an advantageous method of buying undervalued pieces.  Antique jewelry is typically highly illiquid and inherently difficult to value.  But an easy method of establishing a minimum base valuation is to sum the intrinsic values of each individual component of a piece of jewelry.  If you were to add up the bullion value of a piece of jewelry’s precious metals along with the value of all its mounted precious stones, you would have its base intrinsic value.  This calculation is both crude and oftentimes low because it completely ignores any collectible or artistic value the piece may have.  A truism of antique jewelry is that a genuinely fine piece will always be worth more than the sum of its parts.

My policy was to buy antique jewelry close to its base intrinsic value.  This investment philosophy was an excellent way to simultaneously limit risk and maximize potential gain.  And it served me well for many years.  I especially gravitated towards Art Deco and Edwardian jewelry; I not only liked the look of these styles, but they often possessed high intrinsic value components.  The intrinsic value of a quality piece of antique jewelry is usually concentrated in its large, precious stones.  Consequently my investment strategy was dependent on finding pieces mounted with sizable, high value gems.

Then the world changed.  Starting in the mid 2000s it rapidly became progressively more difficult to find pre-World War II examples that fit my criteria.  When you could find them, the prices were oftentimes prohibitively high, erasing the margin of safety I was trying to achieve by purchasing high intrinsic value pieces in the first place.  By 2010, it had become nearly impossible to acquire investable antique jewelry in this way.  I had to change strategies, but first I had to try to understand what had happened to the previously plentiful supply of high-end antique jewelry.

Upon reflection, I came to believe that part of what drove the sharp price increases for high quality Art Deco, Edwardian and Victorian jewelry was the realization that the rubies, sapphires and emeralds they contain are often exceptional, all-natural, untreated stones.  Antique jewelry used to be one of the few ways to acquire these types of coveted gemstones without paying exorbitant prices for certified stones from specialist gem dealers.  I think too many people caught onto this strategy and the supply of these pieces was quickly absorbed by the smart money.

In the end, I opted to modify my existing strategy.  Instead of exclusively buying pre-World War II pieces, I expanded my criteria to include more recent Retro, Mid-Century and Modernist styles.  I even started looking at jewelry from the 1970s and 1980s.  After all, these pieces will soon become the antiques of tomorrow.  In addition, I relaxed my constraints regarding intrinsic value.  I now consider and occasionally purchase pieces that have a higher proportion of connoisseur’s or artistic value.

Choosing high quality jewelry with strongly defined stylistic features is still paramount in my decision making, but now I have a significantly larger investment universe from which to choose.  It is possible to argue that my new strategy is higher risk than the old one.  While I certainly believe that is true, I don’t think the risks are significantly higher.  But by the same token, my old strategy was simply not functional anymore.  All the cheap, high intrinsic value, pre-World War II jewelry is gone now, and it is never coming back.

Don’t Fear the Beryllium Diffused Sapphire Reaper

Don't Fear the Beryllium Diffused Sapphire Reaper

As 21st century consumers, we want everything we buy to be organic, free range and all natural.  But the bitter truth is that the necessary volume of organic, free range, all natural things simply doesn’t exist in today’s world to satisfying the overwhelming market demand.

Colored gemstones, particularly sapphires, are an excellent case in point.  Everyone wants them, but there aren’t nearly enough good quality stones mined to support this massive demand.  Luckily, through trial and error, the gem industry has discovered how to improve poorly colored or heavily flawed gemstones.  The latest of these industry innovations is known as beryllium diffusion.

A beryllium diffused sapphire is a natural, non-synthetic stone that has been dug out of the earth, but is then subjected to high heat in an oven in the presence of a beryllium-rich material.  This causes beryllium atoms to penetrate or diffuse into the sapphire, altering its color.  Thai gem cookers perform this operation because it can substantially improve the color of an existing sapphire.

Sometimes, it turns unsalable material salable.  In other instances, it merely turns a stone with good color into one with great color.  Beryllium diffused sapphires can come in many different colors, but are most often found in incredibly vivid, eye-catching shades of orange, yellow and pink-peach.

However, there are some people who adamantly refuse to touch beryllium diffused goods.  They believe that beryllium diffusion is a step too far for the gem industry.  They think these stones have been excessively treated and are therefore not comparable to more traditional, heat-treated sapphires.

This attitude is partially the fault of the Thai gem cookers who accidentally discovered the beryllium process around the year 2000.  Instead of giving full disclosure of this new treatment to their clients, they instead sold them – at great profit – as conventionally heat-treated stones.  It was only 12 to 18 months later that Western gem certification labs discovered the deception.  As you can imagine, buyers of these stones were outraged by the Thais’ unethical behavior.

However, beryllium diffused sapphires don’t deserve their poor reputation, assuming their treatment is properly disclosed.  Beryllium diffusion is entirely stable.  It doesn’t fade over time or from exposure to sunlight.  The new, vivid colors are also usually consistently distributed throughout the entire gem.  Due to beryllium’s very low atomic weight, it diffuses very quickly into a sapphire, penetrating right into the middle of the gem.  This means that if you must re-polish or even re-cut a damaged beryllium diffused sapphire, it will still retain its new, improved color.

Beryllium diffused specimens aren’t all-natural, untreated stones and they will never sell for comparable prices to completely untreated sapphires.  It is clear that sapphires that come out of the ground already looking beautiful will always sell for a healthy premium over any treated stone.  However, I find it equally unlikely that the price differentials between traditionally heat-treated sapphires and beryllium diffused sapphires will end up being significant.  Instead, it is clear that the prices for traditionally heat-treated sapphires and beryllium diffused sapphires will converge over time.

Interestingly, the sapphire industry went through a very similar scandal several decades ago.  In the late 1970s, some enterprising Thai gem cookers discovered that heating colorless (or geuda) sapphire at extremely high heat (greater than 1,500 degrees centigrade) resulted in some stones acquiring a fine blue color.  In addition to this, the heated geuda also showed markedly improved clarity as the high heat – near the melting point for sapphire – healed many internal fractures within the crystals.

This resulted in a flood of good quality blue sapphire hitting the market in the early 1980s as every gem dealer in Southeast Asia rushed to treat his previously useless stockpile of colorless sapphire.  Predictably, prices for blue sapphires collapsed.  These depressed prices for good quality blue sapphire persisted for over 25 years.

But then a funny thing happened around the year 2010.  The price of blue sapphire skyrocketed, increasing by anywhere from 40% to 100% almost overnight.  This permanent, stair-step price increase occurred because the temporary abundance of blue sapphire in the international gem market was just that – temporary.  The massive stockpiles of colorless geuda accumulated over decades of painstaking, artisanal hand-mining had been completely exhausted.  Now colorless sapphire that responds well to heat treatment is almost as rare as blue sapphire straight out of the mine.

I suspect there will be a very similar outcome for beryllium diffused sapphires today.  At first they are poorly understood and hated.  Prices soon collapse due to a glut of supply.  Then, very slowly over time, the overhang of treatable material is consumed.  Eventually, everyone will realize that beryllium diffused material is durable, stable and stunningly gorgeous.  It is also mined from the earth by hand, just like every other natural sapphire.  Once the markets fully digest these concepts, beryllium treated sapphires will trade at similar price points to other, traditionally heat-treated sapphires.

Time is running short.  It has been over 15 years since the beryllium diffusion process was introduced.  If the current situation unfolds anything like when the heat treatment of geuda was developed in the late 1970s, there won’t be many more years until the price of beryllium diffused material increases permanently.  Organic, free-range and all natural may always be our first choice, but raw, breathtaking beauty – even when helped a little by science – also has its own visceral allure.