Alternative Investments

Colored Gemstones as an Alternative Investment

A collection of colored gemstones on a granite surface
Credit: NPD stock / stock.adobe.com

By Ankur Daga, Founder/CEO of Angara.com

It’s no secret that, in recent years, seasoned investors have been looking for alternatives to diversify their portfolio. In addition to investing in stocks, bonds and gold, investors have added more non-traditional investment options, including diamonds, art, investment grade cars and watches, and cryptocurrency. In line with this investment trend, colored gemstones such as sapphires, rubies and emeralds have emerged as a promising avenue for investment given the exceptional appreciation in colored gemstone values over the years (disclaimer: the author is the Founder/CEO of Angara.com, an online jeweler for gemstones).

An investment in high-quality colored gemstones can yield exceptional returns

An investment in precious colored gemstones can act as a hedge against inflation and can stay relatively unaffected in volatile markets. Over the last three years, we’ve seen appreciation in sapphires, emeralds, rubies, opals, pearls and tourmalines beat the S&P by substantial margins. At the same time, natural diamond prices have declined and are now dropping at extraordinary rates.

Take a look at the numbers that support this.

3 year CAGR

Source: Angara internal research and purchase prices

Notes:

  1. Angara is one of the largest buyers of colored gemstones in the world. Angara buys gemstones in the form of rough or wholesale polished from leading mines and manufacturers.
  2. Investment Grade is defined as Heirloom (AAAA) quality.

Raw Data: 3 Year Compounded Annual Growth Rate (Data from from June 1, 2020 to June 1, 2023)

Asset class table

As you can see from the data above, gemstone prices have witnessed far higher growth than the S&P during the same time, making them a highly lucrative option, especially from the viewpoint of long-term investment. In fact, investors who once considered them to be too low-yield or risky are now using them as an attractive hedge against inflation and/or an economic downturn.

Decoding the Factors Behind Rising Gemstone Prices

The growth in the value of colored gemstones can be attributed to three major factors:

1. Increased Consumption: A decade ago, the US was uniquely the largest market for colored gemstones. By contrast, in 2023, we see major colored gemstone purchases from China and India, too. While colored gemstones represent approximately 10% of the US fine jewelry market, they represent nearly 20% of the Chinese fine jewelry market and an increasingly larger portion of the Indian market.

This shift from a unipolar US-led colored gemstone market to a multipolar one is likely to have even more profound effects on prices in the coming decade.

2. Reduced Supply: The world’s prominent mines are seeing a rapid depletion of their output, starting from the mines in Burma for rubies, Colombia for emeralds and Kashmir and Kanchanaburi for sapphires. Plus, the rising labor costs worldwide have also had a substantial impact on the quantity of mined carats.

As evidenced by the rapid increase in investment grade Pearl, Opal and Tourmaline values, relatively more illiquid gemstones with smaller markets are experiencing even higher appreciation than larger volume gemstones such as sapphire, ruby and emerald. Without the discovery of new mines for some of these gemstones, supply is expected to reduce further.

3. Shift in Investor Mindset: Historically, diamonds were the go-to for investment grade gemstones. However, the recent turbulence in diamond pricing has caused investors to look towards colored gemstones.

The substantial decline in natural diamond prices over the last 12 months (most varieties have reduced in value by 18% to 23%) has been largely due to the proliferation of lab-grown diamonds, which are chemically, physically and optically the same as their natural mined counterparts, but available at a fraction of the price.

The significantly lowered price of lab grown diamonds has placed tremendous pressure on their natural counterparts, making investors wary.

In contrast, we are seeing record-setting auctions in colored gemstones at Sotheby’s and Christie’s, where investment grade colored gemstones are going for far above the high estimates. As an example, Sotheby’s just sold a ruby for $34.8 million, the highest ever for a ruby at auction.

Note on lab-grown diamonds

In 2018, the Federal Trade Commission ruled that lab grown diamonds were in fact diamonds, further impacting diamonds as an investment. More precisely, the word “natural” was removed from the FTC’s definition of a diamond, meaning that lab-grown diamonds were not viewed as synthetic, and could be marketed as diamonds as long as they were described as lab grown (or equivalent language). This increased the demand for lab grown diamonds overnight. 

At the same time, the supply of lab-grown diamonds has increased exponentially, bringing down their price. Earlier lab grown diamonds used to sell for 20-30% less than their earth-mined counterparts. Currently, however, they are selling for 1/4th to 1/10th of the cost.

Increasing consumer demand for colored gemstones

Apart from investor interest, many consumers too are opting for colored gemstone jewelry, preferring gemstone engagement rings over traditional diamond engagement rings.

There are two primary reasons for this:

  • We are celebrating more color and uniqueness as a society, and that is translating into changing tastes.
  • Secondly, as the demand is shifting more towards substantially cheaper lab-grown diamonds that are chemically, physically and optically the same as their natural counterparts, consumers find natural gemstones a compelling alternative.

Gemstones are likely to increasingly be an attractive investment alternative

Gemstones will likely continue to appreciate in value in the future as prices are increasing even during the current economic slowdown. Colored gemstones are likely to benefit from many structural tailwinds while natural diamonds are likely to be hurt by several structural headwinds. This could ultimately result in the continued extraordinary appreciation of colored gemstones.

Disclaimer:

All content in this article is for informational purposes only. This article does not confer any legal, tax, investment, financial, professional or any other advice.

About Ankur Daga:

Ankur Daga is Founder/CEO of Angara.com, the world’s leading online jeweler for colored gemstones. Angara was named as Best Online Shop for jewelry by Newsweek every year from 2020-2023. Ankur is a graduate of the Gemological Institute of America (GIA) and holds a BS from The Wharton School, University of Pennsylvania and an MBA from Harvard.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.