Commodity versus Luxury

The ins and outs of buying jewelry as an investment

By: Gene Schade

We are often asked about buying jewelry as an investment. It is not correct, in our opinion, to buy jewelry primarily as an investment. However, with the banks paying a low rate of interest and considerable concern about the present economic conditions, precious metals and gemstones have climbed a long way up the ladder.

Consumer advice
If we consider what else consumers can spend their money on, there are very few consumer purchases that will retain much of their value over a long period of time. Whatever car you buy new, you would probably have to pay somebody to tow it away in 20 years.

Other consumer items show a similar pattern. They will wear out, go out of fashion, break down or otherwise deteriorate. While some items can be repaired, it is common for repairs to be uneconomical compared with buying a new replacement, which may be more advanced or superior in some other way.

Compared with almost all other consumer purchases, a piece of gold jewelry or a diamond ring will retain some of its value and may appreciate in value over a long period of time.

Investment advice
In December 2008, as most of the world plunged into an economic crisis, a historic fancy deep grayish blue diamond sold for $24.3 million – the highest price ever paid for a single gemstone. But as pure investment advice, it is very unlikely that buying jewelry will prove to be a good financial investment for the average consumer. There will be exceptions to this, but the exceptions will be a minority.

Jewelry is sold as luxury goods at retail pricing. The retail markup must cover a wide variety of costs, including sales tax. Precious metal in bullion form is exempt from sales tax in Texas, while fabricated items such as jewelry are taxed. Manufacturers and wholesalers also expect to make profits to pay for their services. The investment potential of anything depends substantially on its cost price. This is a simple, but obvious statement.

How do you judge value? Get help.
Buyers also need a profound knowledge of the market if they are to purchase a suitable stone or piece of jewelry of enduring value. An investment purchase is not recommended without a reputable partner.

There has been much discussion in recent years about inaccurate diamond grading certificates issued by some gem labs. Recently, one of the most respected labs, the Gemological Institute of America (GIA), suspended its diamond sealing services until further notice after receiving a sealed diamond for verification that did not match the grading report number packaged with it.

Many jewelers sell “the certificate” and do not have adequate technical expertise to verify that documentation matches the stone. Fraud and mislabeling are present in the jewelry industry just as in all other walks of life. There is no substitute for a trusted, experienced gemologist to lend hands-on expertise to your purchase.

Disposing of your jewelry investment
How do you resell that “investment” you purchased at a retail price? The world’s two largest auction houses, Sotheby’s and Christie’s, began regular sales devoted to important diamonds and colored stones in the 1970s. Through their ability to generate publicity, they have become a significant force in price and demand throughout the world.

There are avenues available for the consumer to retail their investment, including Craig’s List and eBay. But most jewelry pieces do not qualify for listing with Christie’s and will get sold at a wholesale price or less.

Quality counts
As with most things in life, buying high quality will cost more initially, but there is more chance that a high-quality item will hold its value better than a poor- or mediocre-quality product. There are ownership costs involved with jewelry, as with most goods. Insurance and maintenance are just two. The more often a piece of jewelry is worn, the more likely it is to get damaged or worn, making repair and maintenance necessary.

The answer is not to lock it away in a safe, because then you lose out on the main benefit of ownership, which is to wear and enjoy it.

Why are you buying it?
Many salespeople talk people into buying jewelry by falsely telling them what they want to hear: that it is a good investment. Ask yourself why you are buying the piece of jewelry. Is it because you will get pleasure from owning, wearing or giving it? If the answer is “yes,” then the reward for your investment will be the value of the pleasure you get. Any residual value in the item in the future will simply be a bonus.

Casa de Oro Jewelers, founded in 1979 by Gene and Dee Schade, has been a precious metal dealer from its origin. They can assist or advise you in pure investment of metal such as gold/silver bullion, colored gemstones and diamonds, or in a luxury jewelry item. For more information, contact Gene Schade at 361-991-7054 or gene@casadeoro.net or visit us online at www.casadeorojewelers.com.

 

Photo provided by Casa de Oro

Posted in Uncategorized