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Investing in Gemstones – No Risk, No Gain

Updated on October 10, 2014

An attractive mode of investment is gemstones. Gemstones are a totally different type of investment because their value depends on themselves and not on the market where they are traded. Investment in gemstones can give you huge returns, but it is also one of the riskiest investments. You should enter the world of gemstone investment only if you have a perfect knowledge of the precious stones, so that nobody can cheat you. However, largely gemstone investment is a type of gambling and you can’t tell when you will be in profit and when you will incur a heavy loss.

Cutting a big raw stone in small polished pieces can give good returns.
Cutting a big raw stone in small polished pieces can give good returns.

Capital and Risk Tolerance

Gemstones should be taken as investment only if you have a huge capital and risk tolerance. This is because there is no guarantee that you will be definitely profited by the investment. Therefore gemstones don’t suit every investor. Gemstones can give you exponential returns. But at the same time you should also be ready to tolerate exponential loss too. And so, you should have a backing of sufficient capital. By and large, it can be said that one can gain a heavy profit if one buys a large and uncut colored gemstone, then cuts it and then sells the smaller stones again. This practice generally brings much more returns than one has spent for the original larger stone and cost of cutting.

Indian queen laden with jewelry
Indian queen laden with jewelry

Exclusiveness of Gemstone Trading

Gemstone trading has been limited to a few families traditionally, belonging to India, Brazil, Israel, Africa, New York, Holland and Belgium. Just recently the trading has been opened up to outsiders. This is because more gemstones are being found and so, their trade too has been boomed like never before.

Diversification Offered by Gemstones

Gemstone investment depends on the qualities of the gemstones and not on the market. Even in the bear market, gemstones can give you huge returns because the value of an uncut stone increases as much as one hundred times, when it is cut and sold. And above this, stone trading is perhaps the most thrilling one which can attract any business magnate.

Gemstone trading is largely limited to diamond, sapphire, ruby and emerald.
Gemstone trading is largely limited to diamond, sapphire, ruby and emerald.

The Basics

If you are planning to enter the gemstone investment market knowing all the risk, you should first know some basics.

You should remember first that though there are thousands of types of gemstones, their trade is restricted generally to diamonds, rubies, sapphires and emeralds. There are lots of factors involved in the determination of value of gemstones, like size, clarity, purity and cleaving. In general, the larger the stone, the more is its cost. And the purer it is, less are the chances of its cleaving (breaking) while cutting.

Color of gemstones too is an important factor in its valuation. Depth and intensity of color are two important terms used by gemologists when they describe gems. North American markets are extremely keen about colored diamonds and truly speaking, large, flawless, intensely colored diamonds are some of the most valued luxury possessions in the world.

Similar to precious metals, gemstones too are priced internationally in US dollars.

Introduction to Gemstones

A gemstone should be evaluated more than once.
A gemstone should be evaluated more than once.

The Risk

Though gemstones can give gains in multiples, they are also associated to high risk. Professional gemologists are persons who can diminish this risk but their fee is huge. Typically gemstone investment risks include factors like low liquidity, fraud and cleaving.

Valuation: One difficulty in the valuation of gemstones is expert gemologists don’t always tell one price of a stone. Therefore the stone should be valuated by more than one expert.

Low Liquidity: Gemstones being rare, being traded infrequently and having no global market, often don’t possess a firm value. Therefore if one buys it, one may have to wait for quite a long to get a buyer to get significant returns.

Fraud: Fraud is common among the affairs of gems. Unless a professional valuator is with you, you find it very difficult to tell whether a gemstone is real or not.

Cleaving: While cutting and polishing, the stone may break into a lot of pieces which may become quite less priced than the original worth. Though symmetrical, polished gems are much more valued than the original unpolished one, but most of the gems tend to be cleft while cutting and polishing, which is a high risk.

Gemstone trading can give great earning at great risk!
Gemstone trading can give great earning at great risk!

High Gain Despite High Risk

Though gemstones possess such high risks, they may give you high returns and so seasoned investors are always willing to gamble on them. Buying a raw stone and selling it after cutting and polishing is just one way of trading gemstones. You can also buy a cut and polished stone when the markets are down or from a seller who is facing hard times. Then you can sell them when markets warm up or in a different country through a dealer or an auction. Usually, investors who buy gems for low value have a long-term perception and can wait for years when they can turn their investment into huge cash.

Caution to be Exercised

Whether you have a backing of a huge capital or not, you should take care to proceed under an expert’s guidance while trading in gemstones. And you should also remember the fact that high gain comes always packaged with high risk.

Rock and Mineral Identification

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