Trading with Gems

Sometimes I can be a ditz.  It took me a while to figure this out: among many other things, 47^th Street is a commodities exchange for gems and diamonds.  This only occurred to me after one of the gemstone dealers I know, who was set up at his booth at a local show, said to me “if you see any great gem deals around here, let me know.”  “Why do they buy from each other?” I wondered.  “Aren’t they there to sell their own stuff?”  Yes, but they also buy from other vendors, mark up the gem and sell it again.  Sometimes on the same day, in the same hour even.  A buyer like me falls into a totally different category for them.  I’m more or less their end user, the person who actually makes jewelry with the gem.  So most people like me are basically at the end of the scale for wholesale prices.

Some gemstone dealers, it turns out, don’t keep any stock at all.  They are brokers.  They borrow gems from a source, from “a guy down the street” (it’s improper to ask who that is), and show them to another dealer at a slightly higher price.  If the deal doesn’t go through, they bring the gems back.  Others may actually buy a parcel, then break it up and sort it into smaller parcels and resell those (all the gems of a certain size, shape, or cut together, for instance).  Yet others are more like runners.  They show up on the street one day, maybe get an introduction through a friend, or just start hanging around and make friends on their own.  At some point, a dealer may ask such a guy to make a run: bring a gem over to another dealer, perhaps to show to a customer (someone like me, that is).   So the guy walks the gem or parcel to the address he’s given, and if the other dealer buys, he will get a percentage.  Said guy (I’m not being sexist, it’s mostly a guy), will be given cheap gems at first, larger parcels eventually (up to perhaps a thousand dollars, probably not much more than that).  The runner may not know even the name of the gem, it’s not his job to make a price judgment, he just passes on gems and messages (“too expensive, customer won’t pay that kind of money, too small, too large,…”).  And it’s his job to collect the money at the end.  To make his delivery, he may have to circumvent customers standing at the booth.  He may have to wait at the door until the dealer sees him and walks over, he may meet the dealer outside in front of the exchange, or he may wait until the end of the day.  That way he can pass on relevant information without the customer overhearing.  And unless you pay attention, you, the customer, may not even be aware any of this is going on.  Meanwhile, the dealer will not tell you he only borrowed the parcel for your viewing. 

How much money do people make that trade in gems?  Well, a runner might make five percent on a deal.  A broker will make the same, unless he’s very good.  If he knows his gems, he might know he can get a lot more for something, and then he will mark up what he borrowed accordingly.  Some brokers make a lot of money that way.  The price of a gem also varies according to how urgently someone needs it.  For custom orders the price may be higher.  To help out a setter who broke a stone, a price can be lower.

But the dealer who hangs on to his stock, who has old stock, or a secure supply line, will make the most money.  He also has the most risk.  Gems can get lost or stolen (insurance for gems is exorbitant, so it’s better to have a good safe), parcels don’t get returned (it’s rare but it happens), or demand for what he has decreases.

When the economy was at its lowest, perhaps a year and a half ago, nobody was buying anything.  It was “survival mode” only.  Markups were low, sales quick, and everyone was looking for a customer like me (= inexperienced and pays at once).  Now business has picked up, a little at least.  And the demand for untreated stones is returning.  Ceylon and other nice sapphires have increased in price, in some cases as much as double.  Alexandrite has gone up.  Tourmaline has gone up. 

A good dealer can get a feel for the market at a show, and he can size up a customer or another dealer in minutes.  If someone is desperate for money, he pushes the purchase price down.  If a customer really needs the gem, the price goes up.  The dealer might also hold on to a parcel on memo for a while and negotiate.  In the meantime, he tries to get a feel for its current market value by showing it around.  If he finds a potential buyer for a couple of pieces, he’ll firm up the deal.

So if business is good, everyone wins, a little at least (every trade ups the value of the gem, all the way to me who sells it to you in a piece of jewelry).  But if business is bad, it’s very bad.  A dealer can sit on a mountain of glitz that could just as well be glass.  Hundreds of thousands of potential dollars of gems won’t add up to a single meal.

Columbian Emeralds, Pear Shaped, Unoiled