External Factors that influence Gemstone Pricing
In this review we will attempt to explain some of the influences that effect gemstone pricing.  This will only be a macro perception of the industry, individual tastes and circumstance will ultimately decide the perceived value for a particular gemstone.    Gemstone quality is obviously the most important factor in pricing. We will leave those factors as there are many reviews that exist which adequately explain their importance. 

The following attributes influence the market prices of all gemstones.  It is often a combination of these factors that influence the seller’s decision on pricing of a particular item. 
Scarcity is a crucial element in all luxury goods.   There must be limited supply to increase/stabilize its price.   For example, a fine, untreated 5ct ruby is worth 4 times the price of a flawless white diamond.   Fine ruby of a large size commands a huge premium due to its scarcity, while a fine sapphire of 5cts is one twentieth the cost.  In relative terms, 5ct sapphires are much more plentiful then 5ct Rubies.  Gem quality amethyst, which can be argued to be equally beautiful, can be purchased for $20/ct, primarily due to sufficient supply. 

Prestige:
There is a theory in economics called “Giffen goods” which attempts to explain a anomaly of economic fundamentals.  Essentially, it states that many luxury products are demanded because it is a high price.  Thus, the high price,it self, causes increased demand.      This is the prestige factor, the exclusivity of ownership.  Using this principle, many people buy gemstones because they are costly and retail stores simply charge more.   
Durability:
One factor of gemstone demand, thus value, is the ability of gemstones to be worn for adornment.   Diamonds, Corundum and Jade are among the most highly demanded due to their hardness.  They are able to resist damage.  Especially with fine gemstones, one expects their investment to last for generations.   Thus, demands (price) are generally higher for stones with high degree of hardness and toughness.  
Popularity:
Much like any product available for sale; trends, fads, endorsements and advertising will spike demand for gemstones.  Note the examples below.
-         blue diamond featured in the movie, Titanic, increased demand for  large sapphires of similar tones and saturation
-         Ben Affleck’s proposal to Jennifer Lopez, with a large pink diamond, increased demand for all pink gemstones
-         Lady Diana’s sapphire engagement ring increased sales of sapphires throughout the commonwealth nations
-         Hindu astronomy and mythology suggest healing and supernatural powers associated with crystals. Thus, increasing the demand (value) of many unheated yellow sapphires, sapphire, emerald and pearl.
Increased short demand due to heightened awareness will cause prices to increase. 
 Retail Shopping
Brand name stores have earned a strong reputation for quality and service.  When one buys a gemstone from Tiffany or their local jewelery store, they have to realize that overhead costs makeup a large part of the cost of the gemstone.   Retail stores must mark up the price at least 300% to pay for the opulent décor, locations and staff. 
Colored stones also have a slower turnover then diamonds thus the bottom-line is further compensated by increasing margin. 
Relative to diamonds and watches, retail stores do not sell many quality colored stones.   Primary reasons are due to the inability to understand them. Without volume purchasing, they are unable to secure supply at competitive prices. 
E-commerce based sellers like Blue Nile, eBay, ali baba etc. have limited overhead expenses, they have huge volume and are incredibly specialized.  Their business model works on fast turnover with slim margin.  They are unable to compete with the opulence of brick and mortar stores so they complete solely on price and selection.  
Appraisal values
Many gemstones are often valued as a percentage of an appraised value.   One must be very careful with this sort of pricing.  Although, it seems that appraisers have the right qualifications, there is absolutely no governing body.  Appraisers are not bound by certification standards.  Their valuations are merely an opinion; it does not represent any sort of resale value. 
 
Politics
Unfortunately, maybe ironically, most gemstones are found in unstable locations.   Civil unrest is common in areas where gemstones are mined.  In many instances, supply is often disturbed with war, elections, terrorism and various other geo-political tensions.  
 
Example:
Gemstones from Sri Lanka often reduce in price as cease fires agreements are broken.  This is primarily due to decreased visits from overseas wholesale buyers.  As fewer buyers come to Sri Lanka, the local dealers are forced to sell of excess inventory at lower prices. 
Corruption is another major reason that influences gemstone prices.  In many countries, public funds, untaxed money and various other ill gotten gains are used to purchase valuable gemstones.  There is no other product on earth that is so easily portable, stable store of value and some what liquid. 
Currency fluctuations
Gemstones buying countries are usually not gemstones producing countries.   U.S.A, Canada, Western Europe, China, India and Australia are the largest buyers of Gemstones, yet, they produce a small amount of the total supply.   The prices of these imported stones are affected as your local currency fluctuates.  
When our dollar is trading high, we are able to import stones from countries that have a lowered value currency.   These fluctuations affect the overall dollar cost to you when you make your purchase.  
Monopoly, collusions and Competition
In perfect markets, supply and demand would dictate pricing, but, this is only an idealistic model.  Markets are full of monopolies and collusions. 
DeBeers is the perfect example.  DeBeers is the world largest miner and seller rough diamonds. They routinely restrict supply to stabilize prices.  They have the scale and the incentive to do so.  In cases of increased supply, they will not allow prices to come down.  They will simply stock the material until it can be absorbed at stable prices.  
Recently major tanzanite dealers have established a cartel to limit supply, called Tanzanite One.  They expect to increase/stabilize the price of tanzanite by carefully manipulating the supply.
The same is true for your local jeweler at a micro level.  If there is limited competition, your jeweler is well aware of his position.  His margin will be higher as he realizes the added inconvenience for you to shop elsewhere.  
The internet is essentially the closest we have come to an ideal market. All products can be compared relatively easily without superficial influences.   The internet forces vendors to be extremely competitive.  They understand that even those living in remote towns have access to international vendors. Stone merchants from around the world are constantly finding way create niche markets thus gaining efficiencies in purchasing and operations.    
Economy of scale
Gemstone merchants are governed by the same economic fundamentals as other business. The scale at which they operate has a direct impact on their ability to source materials and produce jewelery.   A large scale operation which is fully integrated saves vast amounts of resources by having the ability to control most of the components.  
Example: JBN gems, a new vendor to eBay, works on a scale where they have built many efficiencies. 
JBN gems is primary a wholesale distributor of loose gemstones.  Their main business manufactures and supplies loose stones to other merchants, jewelry manufactures and dealers.  They were further able to capitalize on this strength by selecting the finest stones in the wholesale parcels to produce jewelery.  They were able to produce fine jewelery at a lower cost due to their large volume purchases.  If they did not have their own loose stone division, they would pay a premium to select the finest stones. 
Furthermore, JBN is now selling directly to the end user via eBay thus eliminating all middleman, overheads and credit risk.   They have created economies of scale, whereby the efficiencies developed result in saving for their consumers.
 
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