What it means
A gemologist studies the physical and optical properties of stones, including hardness, colour, clarity, refractive index and origin. Using special instruments and training, they can tell a natural stone from a synthetic or imitation one, and spot treatments such as heating or filling that affect value.
Their findings are written up in a grading report from a laboratory, which becomes the reference document for later sales and insurance. For diamonds, quality is summed up by the four Cs, which are carat (weight), cut, colour and clarity.
Each factor affects the price, and small differences in a grade can mean large differences in value. Coloured stones are judged by similar ideas, with extra attention to the intensity of colour and the stone's source.
Gemology matters in finance because gems are held as stores of wealth, pledged as security for loans and covered by insurance. A pawnbroker or private bank that lends against jewellery needs a trusted grading and valuation.
An insurer needs an appraisal to set the sum insured and to settle a claim fairly. Pricing is not simple.
Value depends on rarity, demand, fashion and certification, and there is no single exchange price as there is for gold. Prices per carat rise sharply as stones get larger, so a two-carat stone is typically worth much more than twice a one-carat stone of the same quality.
The nuance is that gems are hard to value and sell, and the market has less transparency than markets for shares or bonds. Retail prices include large mark-ups over what a dealer would pay, and a resale may fetch much less than the purchase price.
Anyone treating gemstones as an investment should rely on independent grading and use specialist advice.
In practice
Real-world examples.
Example
A jeweller offers a customer a diamond ring, and the customer asks for a laboratory grading report. The report lists the four Cs and confirms the stone is natural. The customer uses the report to arrange insurance.
Example
A private bank accepts a collection of coloured gemstones as collateral for a loan of $500,000. It has the stones graded and valued by an independent gemologist, and lends only a fraction of the appraised value. The bank stores the stones in a secure vault.
Example
An estate lawyer needs to value a set of family jewels for probate. She hires a gemologist to appraise each piece and give a written valuation for the tax authorities, and she keeps the reports on file in case the figures are questioned. The heirs use the figures to divide the estate fairly.
Formula
Calculation
Stone value = carat weight x price per carat for that quality
Insured amount = appraised replacement value x chosen cover percentage
Suppose a gemologist grades a stone at 1.50 carats, and the appraised price for that quality is $6,000 per carat. Stone value = 1.50 x 6,000 = $9,000. If the owner insures it for 100% of replacement value, the insured amount is $9,000. If a 2.00 carat stone of the same quality is priced at $9,000 per carat, its value = 2.00 x 9,000 = $18,000, which is twice the value of the smaller stone, even though it is only 33% heavier.Case study
Seen in the real world.
Emberline Jewellers is an illustrative, fictional retailer that bought a parcel of sapphires from a trader at a price that seemed attractive. Before putting them on sale, the finance director arranged for a gemologist to check them.
The gemologist found that many of the stones had been heated to improve their colour, which was not mentioned by the trader. Heated stones are valued lower than untreated stones of similar appearance, so the parcel was worth well below the price paid.
In the illustrative outcome, Emberline renegotiated part of the price, sold the stones with honest labelling and added a rule that every purchase over $10,000 needed an independent grading report. The finance director said the cost of the checks was tiny compared with the loss they prevented.
Watch out
Common mistakes.
- Buying gemstones as an investment without an independent grading report, which leaves the buyer unable to verify what was purchased.
- Assuming value rises evenly with weight, when price per carat usually climbs steeply for larger stones.
- Treating a retail price as the resale price, when dealers pay far less than shop prices.
Questions
People also ask.
What is the difference between a gemologist and a jeweller?
A gemologist is trained to identify and grade stones, while a jeweller designs, makes or sells jewellery and may or may not have gemological training.
What are the four Cs?
They are carat, cut, colour and clarity, which are the main factors used to grade diamonds.
Why do lenders and insurers use gemologists?
They need an independent opinion on identity, quality and value so that loans and claims are based on reliable figures. A fresh appraisal every few years also keeps the insured amount in line with the market.
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