Why Gemstones are the Perfect Hedge Against Inflation
Year 2022 will forever go down as the year of sensational inflation peaking 8%, uncertainty in a slumping stock market, crypto behaving as if it’s on a professional diving team, gas prices rising 100% in some regions, and interest rates climbing the fastest in decades. Recently, it also seems like real-estate is cooling off. According to professionals, it’s also about to tip over the edge too, possibly dropping 10-50% (depending on location). So where is the best place to stash some cash if bonds can't perform? Tangible assets that climb with inflation, such as gemstones.
Just like fine art and wine, gemstones have been a classic inflation hedge for the wealthy. Unlike other commodities, the market for precious stones is relatively small and not driven by industrial demand. Also, the average person would never think of them as a hedge. Investment-grade is a term you'll often hear used when discussing gemstones, but it's a shady one that the FTC hates and snaky gem dealers use to loop in uneducated buyers. Be very weary of people who use the phrase.
So how do you break even, climb with inflation, or even make a small profit? The most important thing to do before investing is taking the time to educate yourself on the supply chain, pricing, and origin of gemstones. Do the work! It only takes about a month of research to get your feet wet, and it could save you from falling off the deep end long-term. I suggest picking up a couple books and watching YouTube videos until you have a general idea of pricing and appearance.
Next, find an honest wholesaler to buy from, hopefully in the country of origin the gemstones are mined in. If not in the country, one who is tier one (they cut the stones themselves). These wholesalers give a better deal, and most likely, they aren't in the country you are residing in. Once you find one, read their reviews! Not 10 reviews, you only want to purchase from someone that has over 100 reviews and has been in business for at least 3 years. By purchasing from an established wholesaler, your stones will be at least 20% under market value for colored gemstones, and 10% under market for diamonds. This margin will give you a nice squishy pillow of safety.
The next step I suggest is hiring a local certified appraiser who also has good reviews. Reach out and ask them their favorite gem picks and negotiate an appraisal price (if it’s per piece or a discount for multiple pieces). You’ll need this later on to insure the gems, but it’s always a smart idea to inquire what they think the hot gemstone of the moment is. Currently, my favorite pick is Tsavorite garnet, and I’ve been digging through the internet for decent priced internally flawless emerald cut 5 carat for the last 3 months.
For more educated investors, I always suggest auctions to pick up great deals. I also like the idea of buying raw gemstones and cutting them yourself. However, this takes equipment, takes up time, and takes practice. If you don't know how to, you can always purchase raw gemstones and have a local lab cut them for you, but again, do your due diligence! Find a lab that is certified and look at their work. The two most famous are GIA (Gemological Institute of America) and AGS (American Gem Society). They will grade the quality of your raw stones, give them a certificate which adds value, as well as cut.
Like any investment, nothing is guaranteed and know this going into your hedge. If a large deposit is found in another area, such as what happened with blue topaz in the 1960’s, you could lose a large portion of investment. But if you take the time to educate yourself, purchase from the right people, and get a certificate of quality - gemstones could be a practical inflation hedge. And who knows, maybe you'll have some fun too. What are your thoughts? Have you ever considered investing in gemstones?