Consumer Cautions

Over the course of our careers, we've seen all kinds of scams and misadventures for investing in gemstones. So we thought we would tell you about some of the more common traps to be aware of.
In general, implying that a gemstone purchase is a money-generating investment is fraudulent. There are good reasons for this. One is that in order to recoup your initial "investment," let alone make additional money, you have to have a buyer or buyers ready to purchase the item. Finding these buyers is harder than it seems. Remember that if you walked into a store, stumbled onto a website, or purchased a gemstone from a shopping channel, then anyone else in the general public can do the exact same thing. This leaves absolutely no reason for anyone to pay you more for the same item.
Another point in "investing" is that you need to have full knowledge of what you are putting your money in. You wouldn't invest in real estate or buy stock without some understanding of how those markets work-so don't do it with gems. How does the market work for gems? How do you market them? What are the legalities involved with selling a gemstone? What does the collector market require in a gem? Do you know the background of the person selling the gem? Are you sure that the source is legal and legitimate? And most importantly, do you know how to access the quality, identity, and origin of the gem that you are buying? If you can't answer these questions about the gem you are buying, then you are obviously treading on very shaky ground. In fact, you will be very lucky if you get more than half of your money back.
Colored stones, in particular, have very unstable markets. Most are mined in third-world countries with unstable political situations and limited infrastructure. A now reliable source may be inaccessible in a few months due to a civil war in the area. The United States may enact a boycott on the source nation due to human rights violations - like that on Myanmar/Burma. A gem can lose value due to scandal in the mass media-like emerald in the nineties when the common practice of filling fractures was exposed on national television. Tanzanite took a severe blow to its value when it was falsely reported to be a fundraiser for Al Qaeda in the Wall Street Journal. A stone that is found in only one place today may be found in several more places in the next year. A stone that is rare may not have enough public recognition to achieve high prices in the market. All in all, colored stones are not predictable investments, and just because a stone is a "Cuprian tourmaline," for example, it is not necessarily a high-quality "Cuprian tourmaline."
So here are some of the "investment" scenarios that we have seen.
"TELEVISION GEMSTONE BUSINESS"
A couple buys gemstones from a television-shopping network with the intention of using them to stock a jewelry business. They know only what they are learning about gems by watching the shopping network. They believe that they will sell the gems to jewelers for at least double what they paid.
Why it doesn't work:
Jewelers have access to tradeshows and wholesale dealers. A needed gem is simply a phone call or email away. AND if a jeweler really wanted these stones, he or she could buy them from the same television-shopping network.
What you should do:
Buy gems to enjoy. Shopping via television can be fun and relaxing. Anytime that an item is mass-marketed, you are not the only one that got "the great deal".
"BUYING AT THE SOURCE"
A businessman goes to Asia regularly on a corporate assignment. He decides to buy gems "at the source," which he assumes will be much less expensive than here at home, and resell them. He buys several rubies and sapphires and takes them to local jewelers.
Why it doesn't work:
The man had no idea what he was really buying, so he ended up with several synthetic stones, some very poor quality stones, and several others that were treated in a manner that the market here finds unacceptable. Jewelers don't want the stones. The man paid too much because he assumed that the stones were natural and of fine quality due to being close to the source. He really got a pile of junk that he is now stuck with.
What you should do:
Learn about gems! The man obviously has an opportunity with his travel schedule to start a lucrative business. He needs in-depth technical training in gemology so that he can make good buying decisions. He also needs to develop a network of possible buyers. This could take years, but if he has a passion for gems, it could, with lots of hard work and some painful money-losing lessons, work.
"THE MILLION DOLLAR TOURMALINE"
A couple buys a large, supposedly rare tourmaline for $15,000.00. The stone is as large as a small egg, has a khaki green color, and lots of fractures. The dealer tells them that they will be able to sell the stone for hundreds of thousands of dollars-possibly millions. The couple assumes that the dealer is wealthy and obviously understands how to make money with gems. The couple thus thinks that the dealer is telling them the truth.
Why it won't work:
The stone isn't really rare, and it is too large to be used in jewelry. The stone, though large, is not visually appealing and has been treated/enhanced with a method that is unacceptable for this stone in most of the market. A fair retail price to pay for such an item is $6000 to $7000. The couple has no idea how to sell the stone or who may buy it.
What you should do:
Understand that NO ONE sells something that they can get a million dollars for, for a few thousand. If a million dollars can be made-they are going to make it. They are not going to sell an item for that large of a loss. Would you do it? Of course not, and neither would anyone else. Also, learn about the market and get technical training in gemology. Then you will know that there is nothing "rare" about the stone in the first place. Also, check into the background of the seller. In this case, the dealer had a very poor rating with the BBB and numerous complaints.
"THE HUGE TOP GEM GREEN EMERALD"
A woman is sent an unsolicited email telling her of a 3000 carat "top green color gem" emerald. The company says that the stone is for sale and is "investment grade." The email is signed by someone claiming to be a Ph.D. in Geology and head of a Natural Science Department in Canada. The email mentions GIA (the Gemological Institute of America) and implies that GIA is involved in the verification of the gem. The woman purchases the stone for several thousand dollars and expects to sell it to a museum for hundreds of thousands.
Why it won't work:
The emerald in question is large but of the worst possible quality. The stone's many fractures are filled with oils and resins that are dyed green to impart what little color there is. Museums could care less, as the stone is technically too light in color to be classified as an emerald. The dyed green substances in the cracks are the only things imparting a green color. This type of material is sold by the gram or pound, not the carat, so the woman has grossly overpaid. Furthermore, she is unable to get her money back because the company is not in the United States.
What you should do:
The unsolicited email is a huge tip-off that all is not well. Again, technical gemological knowledge would tell anyone right away that the emerald in the photographs was not of good quality. This particular stone was so unattractive that it's hard to believe anyone would actually buy it. In fact, two gemologists termed the stone, "an ugly piece of crap" and "icky." The woman was taken in by the size of the stone, but in gems, bigger is not always better. Also, GIA sent a Cease and Desist letter to the company for using their name.
"GEMS FROM AFGHANISTAN"
Soldiers stationed in Afghanistan buy gems while deployed and expect to sell them at home for a profit. The soldiers are not paying much, maybe $20 to $100 for a group of stones. The soldiers know that Afghanistan does produce gems and assume that these are likely of local origin. The soldiers are somewhat skeptical, but since no one is spending a huge amount of money, they decide to give the gemstone business a try.
Why It Won't Work:
The stones are synthetic, rubies with glass fillings, and star sapphires with artificially induced stars. None of the stones would cost more than $20 per stone in a jewelry store in the US, and the identities and treatments would have to be disclosed here. Thus when the soldiers get home, no one wants to buy the stones.
What You Should Do:
Granted, it is very bizarre to realize that some of the most remote areas of the world are stocked with synthetic gems, and high-tech treated gems. But they are. Taking a class to recognize gem treatments and identify synthetics would be a good idea before buying overseas. Also, Afghanistan is a producer of lapis, emeralds, tourmalines, and aquamarine. Ruby and sapphire aren't commonly mined there. All in all, this is more a cautionary tale since the money paid in Afghanistan was the same as what the stones would cost here, if not slightly less, and maybe a few servicemen had some fun and excitement buying the stones.
"TIFFANY & CO WILL WANT YOUR TANZANITE - YOU WILL MAKE A FORTUNE!"
An unscrupulous jeweler convinces unsuspecting clients that they should buy tanzanite from him because the source of the gem is running out. He tells them that the stones are an investment and that when the source is depleted in the next year, Tiffany & Co. will be calling him to buy any tanzanite he knows of on the market. People buy the stones, paying much more than is normal in the market, and hold on to them. The crooked jeweler goes so far as to have the buyers sign non-disclosure agreements about the transactions.
Why it won't work:
While it is true that tanzanite is found in only one place, the source is still producing large amounts of gems. Also, Tiffany & Co. is not going to use a small-town jeweler as a source for their stock. The quality of the material being sold was not of a high enough quality to interest Tiffany in any case. Furthermore, the unscrupulous jeweler charged about three times the market rate for the stones. Even though tanzanite has gone up in the years since the hoax was perpetrated, the market price for tanzanite is still not at the level that the victims were charged.
What you should do:
Remember that gemstones are poor financial investments. Learning about gemstone value would have shown that the stones were grossly overpriced. Learning how to judge quality would have shown that the stones were certainly not of a quality that would interest a firm like Tiffany. Also, a call to Tiffany & Co. will result in the unequivocal knowledge that they would not and never have dealt with such a charlatan. Most importantly, no one insists on the signing of a non-disclosure agreement for a legitimate transaction.