Valuation of Gemstones, Diamonds and Jewelry

I will answer this question in two parts. In this post I will deal with the first part, which is "The principle of valuation in economics".

The valuation of gemstones or any other item or commodity (eg Rice, shoes) are based on the same basic principle that is common to any item or commodity.Some aspects of valuation that are specific to gemstones will be dealt with in the following post.

In the study of economics we come across some basic principles such as scarcity, supply and demand.
The combination of these factors determines the "Price of an Item"

In this post I will discuss the most important concept that is behind the valuation of any item.
This is the concept of demand and supply.When demand equalls supply the price is called the "equilibrium
price", or more commonly "the market price".Generally if the demand exceeds the supply,the
price increases. When the supply exceeds the demand,the price may come down.

It is the combination of many factors, one of which is demand and supply that lead to the value
of an item.

The demand and supply concept can also be coupled with the "scarcity concept". There are
some items that are generally more scarce than others. The more scarce an item is the higher
the price. It is an accepted fact that gemstones are relatively scarce.

Another very important factor in economics that determine the value of any item in the market is durability.
The more durable an item, the more will be the price.Quality is another important aspect
of valuation. Quality and durability may not necessarily be the same. Quality is more appropriate
for functioning or working items.

The Brand and design (Which may or may not be associated with durability) is also an important
factor that determines the value of an item.

In this post I will deal with the aspects of valuation that are relevant to gemstones, jewelry and diamond industry.

The principle of valuation of gemstones is similar to the valuation of any item (as outlined above). A rare gemstone(such as alexandrite or emerald) is more expensive than a common gemstone (eg Topaz), which
is comparatively cheap.

Probably the most important aspect of the valuation of gemstones is the beauty assessed by the
human eye (eye catching beauty). This eye catching beauty cannot be assessed by any machine.In
other words when a gemstone is offered for sale, it speaks for itself.

The physical properties of the gemstone that are important for valuation ,are intensity,
transparency,clarity, flawlessness,proportions,quality of cutting,standard of polishing and weight
of the stone etc.

The internationally accepted unit for weighing gemstones is the "carat". A carat is equivalent
to 1/5th of a gram (200 milligramms or 0.2 gram). The word "carat" comes from the seed of the carob tree
(Erythrina Ceratonia Siliqua) which grows in Africa. The chocolate brown trees of the carob
tree are flattened with a pear-shaped appearance. The dried seeds of the carob tree show a constant
weight in any season of the year which is equivalent to 200 milligram or 0.2 gram.

According to D. H. Ariyaratna (FGA, DGA, FGS):

"The value of a gemstone can be defined as purely an opinion of the individual valuer given in
good faith and expressed in monetary numerical terms,based on the prevailing market price per
carat at the time of valuation"

Gemstones, just like any other commodity is subject to constant variation in the value due to
numerous factors.Therefore the precise valuation of a gemstone is impossible.

More information to follow in subsequent posts.

Summary of the principles of valuation in general

1)Demand for the item.

2)Supply of the item.

3)Scarcity of the item.

4)Durability of the item.

5)Brand and Design of the item

Summary of the principles of valuation of gemstones

1)Appearance to the human eye(eye catching beauty- Probably the most important)

2)Physical properties of the gemstones such as colour, clarity,flawlessness,proportions,transparency, weight of the stone and the type and quality of the cut.

3)Rarity of the gemstone with respect to other types of gemstones.

1)The per carat weight of a stone increases exponentially when the total weight of the gemstone increases.For example if the price of a 0.8-carat gemstone is 100 usd. Then a similar 3.5-carat gemstone of the same quality (similar physical properties like colour,transparency etc) might cost as high as 3500usd.

2)Gemstones that have extraordinary properties such as colour change under different types of light are more expensive than gemstones that do not have this property. Examples of gemstones that have this colour change property is alexandrite and some garnets. The colour change may be more prominent in some gemstones than others. The more prominent the colour change the higher will be the the price.Prices of gemstones that have the colour change properties can be even higher than rubies.

3)Treatment done on a gemstone also influences the value. Usually it is the totally untreated gemstone which has the most value.Examples of different types of treatment are heating,radiation,diffusion and oiling.

4)The colour of the gemstone also determines the price. eg among sapphires, various light tints of pink, yellow, mauve, green and white are referred to as "fancy sapphires". Generally fancy gemstones have much lower value than their counterparts.

5)Chrysoberyl cat's eye gemstone comes in different shades of honey, apple green, dark grey and brownish yellow. The valuation of chrysoberyl cats eye is similar to the valuation of star sapphires( see below). In cats eyes it is the clarity of the "streak of light" that determines its value.

6)Among star sapphires and star rubies, a simple classification into four categories will help the valuation. This classification is based on the clarity of the star and the colour of the background:

a) The star shows clearly in ordinary light with background colour that is either deep blue (star sapphire) or deep red (star ruby). These are regarded the best and command the highest prices in this variety.

b)The star is only visible in strong light but with a good background colour.

c)The star is visible in ordinary light but with a dull or weak background colour.

d)The star only shows clearly in strong light and there is an extremely weak background colour.

7) The presence of cracks, flaws and inclusions can decrease the value of a gemstone. In some gemstones such as rubies, the presence of small amount of inclusions is acceptable because it is proof that the gemstone is "Natural".

8)Rarity of the gemstone will be of value even if it is not commonly used in jewelry. Examples of rare gemstones found in Sri Lanka are: Ekanite, Sapphirine, Scapolite, Sinhalite and Taaffeite. These gemstones have "collector's value". Gemmologists, geologists and mineralogists all over the world collect such gemstones. Museums , Universities and research centers around the world also collect these gemstones.