Income+
Investing in gemstones
Tan Jee Yee 
Precious stones remain precious, and profit can be made from selling them. Still, can gemstones be considered a good investment? – FREEPIK
Have diamonds lost their allure? It may seem so. The president of the World Federation of Diamond Bourses said in 2015 that the industry had fallen behind times because “it was not keeping up with trends”.

The best-selling watches these days aren’t the type with diamond-encrusted faces, but those decked with touchscreens and apps.

Yet it hasn’t stopped people from considering the diamond – as well as its other precious brethren like ruby, topaz and pearl – as a form of investment. Entrepreneur Anthony Balan, who has a fair chunk of his portfolio devoted to commodities, keeps a few precious stones as investment.

“I still believe in some aspects of physical wealth,” he tells FocusM. “Things like platinum and diamonds won’t be losing their value anytime soon, so it’s always worth having a few around as safekeeping for a rainy day.”

Undoubtedly, precious stones are still precious – you’ll still hear stories of large Burmese rubies selling for US$300,000 in the market, which makes owning one as investment tantalising. The question remains: are they good investments in the first place?


Risky business

Penang-based financial adviser Mohammad Ridzuan would tell you that the potential for exponential gains may mask the disadvantages of gemstone investing. “You have to know that gemstone investing is one of the riskiest kinds of investment,” he says.

Dabbling in gemstones means risking invested capital to fraud, political risk, subjective valuations and the potential for the stones to be damaged when cut. “People who invest in gemstones have to know that they’re taking a very large risk. You need the right contacts and sufficient knowledge to avoid being cheated, or making a bad investment,” Ridzuan explains.

It’s also often hard to resell precious gems when the need arises. “Gemstones have low liquidity – you need to get it into the right market and, if you’ve purchased an uncut gem, then you would need to get it cut. It’s a long process,” he adds.

There’s also the need to have the stone evaluated by an expert to determine its value. For the most part, it’s often hard for the untrained eye and mind to know which gemstone is truly valuable, and which is not.

“In gemology, bigger gems are considered good, but weight is actually more important. Usually, gemstones that weigh more cost more per carat because they are rarer,” he says. It gets more complicated – total carat weight matters as well. Essentially, a slew of tiny gemstones isn’t nearly as valuable as a heavier single stone, even though the total weight of both may be the same.

Even having purchased a larger, uncut stone, one faces risks, one of which is cleaving. This refers to the risk that a stone will break apart when cut and polished. Polished, symmetrical gems are more valuable than those that are uncut and unpolished, but most gems have a tendency to cleave during the cutting and polishing process, which makes it a risky venture.

It gets even more convoluted when we bring colours into the fray. “Diamonds, for instance, are more valuable when they are close to blue-white in colour than when they progress towards yellow and brown. But diamonds that are red, pink, bright yellow, orange, green or purple are a lot more valuable than the usual blue-white ones,” Ridzuan says.

At the same time, all stones are not as easily colour coordinated as you may think. Just because a stone is red doesn’t mean that it’s a ruby – it could be a garnet, red beryl, spinel or morganite. “What I mean is that you truly need some expertise to start investing in gemstones,” he notes.

Relying on experts presents a problem as well, as they don’t always necessarily agree on a gemstone’s worth. “It gets quite subjective. Anyone who wants to buy a stone would need to consult with at least a couple of professional gemstone valuators,” Balan says.

It’s important not just in deciding the value of the stone, but also to avoid fraud. “You’ll need the services of an appraiser as well, to avoid fraud. All in all, it’s not an investment for everyone.”


Diversifying into gemstones

Still, Ridzuan doesn’t deny that significant returns can be gained from buying a large, uncut stone, have it processed and resold in the market for a lot more than was paid to purchase and cut it. Like most commodities, gemstones can be seen as a good, often stable alternative investment to diversify a portfolio.

“You can think of it as a means to compress a large pile of cash into a very compact asset that can be stored and is physically available when you need it,” he adds.

Aspiring gemstone investors have a choice of buying a raw stone and selling it as a polished gem, or buying a cut, polished stone in a down market. “Sellers who have a hard time selling a valuable stone may be a good place to start,” offers Balan, who purchased his first ruby in a down market.

The stones can be sold when the market warms up, he says, or sold in a different country via auction or dealer. There is a long-term game to be played here, too: there are investors who purchase gems they believe to be undervalued and are willing to wait years to turn their investments into cash.

To get started, Balan says only a gemstone that weighs at least two carats can be considered a “contender” for the investment category, and at best commands a market value of above US$3,000 (RM12,870). Not exactly a price tag most investors would want to buy in casually.

Investors should buy from a trusted vendor, and have the stone backed with running checks on credentials and history. Most importantly, however, is a fair knowledge of gemstones. “You need to be able to at least identify the core gemstones like diamonds, rubies, emeralds and such,” he says. This is also to avoid falling for gemstone marketing gimmicks and buying at over-valued prices.

“You might have vendors selling you an ‘evening emerald’, which is actually peridot. Sometimes they mark up the prices with fancy names,” Balan says.

One the risks that come with gemstone investing is cleaving during the cutting and polishing process – PIXABAY

Rarity factor

Rarity should also be factored into which gemstone to purchase. Generally, rarer gemstones have higher values. Emeralds, rubies and sapphires would fall under the “rare” category, but many semi-precious gemstones like amethyst, citrine and garnet are more widely available and command a relatively lower price, which makes them not investment-worthy.

Ridzuan adds that investors should avoid buying gemstones in the retail market – that is, as jewellery. This is because the buyer would to pay a 50% mark-up over the wholesale cost of the jewellery, plus the workmanship that went into creating the ring, bangle, necklace or what have you. “It loses half of its value when you resell it,” he says.

Generally, primary gem dealers would mine and sell the stones, while secondary dealers buy from the primaries to resell to individuals, jewellers and wholesalers. Buying from the primary dealers would give you the best price, but you would need the contacts as well as industrial and gemology know-how to get started.

“Otherwise, you get a better price if you buy in lots rather than single stones. That’s one way to begin investing,” says Balan.

So what gemstones should an investor look into? Balan says the best valued have always been rubies, blue sapphires and emeralds, or lesser-known but equally valuable gems like imperial topaz, jadeite jade and Paraiba tourmaline.

“But diamonds are always everyone’s best friend.”

This article first appeared in Focus Malaysia Issue 246.