Gemfields Group (LON: GEM) shares are up 7% on Friday. This is on the back of the auction proceeds of their most recent lot of emeralds. One obvious point to make is that yes, precious stones are indeed precious and are going to very decent prices. There is always though that worry about how sustainable this is. Partly simply fashion, will emeralds – as opposed to rubies just as an example – remain the stone that people want? Given that the valuations here are always and only about conspicuous consumption then it does matter how fashions go in conspicuous consumption.
Not to have too much of a downer on it the diamond industry is an example. Prices per carat have been falling. Partly this is to do with artificial, lab grown, diamonds getting much better. There’s no particular technical reason why lab grown emeralds shouldn’t do the same at some point. Or rubies for that matter. It’s also true that fashions have changed – that diamond engagement ring is no longer the simple default.
On the other hand it’s possible to note how much better Gemstones is getting at the auctioning of their production:
Gemfield Group auction results from Gemfields.
Auction design is one of those areas where applied economics has got much better in recent years. The biggest trick learnt from the telecoms spectrum auctions was to make sure that there are more bidders than lots. For, as we can see, more bidders tends to mean higher bids per carat here. The other aspect is the greater use of technology – by making the auctions solely online it’s possible to appeal to the global market for such rough gemstones.
For the future we might expect the per carat price to vary in two different ways and directions. One is the efficiency of the auction – how much of the global demand are Gemfields able to capture? The other is that level of global demand. That will depend both upon the fashion for emeralds and also, we expect, upon economic growth and inequality. It is economic booms that produce large fortunes which lead to rises in the demand for high quality, high size, gems. General economic growth across a society doesn’t really do it.
One of those is within the power of Gemfields to vary, the other isn’t.