Friday 13 July 2012

Gems are super underpriced on the RMAH right now.

Gems are one of those commodities that's basically a substitute for gold, since about 85% of their value is derived from a fixed cost: the crafting cost of the gem. Ergo, gems should trade roughly in-line with gold. High-level gems on the RMAH, however, have seen significant downwards pressure in price, probably partly because of an arbitrage opportunitythat existed yesterday, while gold was still not yet available on the RMAH (note, the opportunity has since vanished because of all the pressures on price to force the market back into equilibrium). However, when one looks at prices of gems on the RMAH, they are well below where they should be. Assuming BNET balance as opposed to paypal (one 15% tax hit instead of two), perfect star gems should be trading somewhere in the $17 ballpark ($17.50 * 0.85 / 2.5 = ~6 mil, roughly the crafting cost of a perfect star gem), rather than the $12/13 prices at which all gems except emeralds are currently trading. This is assuming that high-level gems on the RMAH mirror those on the gold AH, and trade at roughly 17.6% premium to crafting costs to negate the blizzard tax (crafting a perfect star gem costs about 6 mil, but sell for about 7 mil on the gold AH to account for the 15% hit).

This means:
  1. Don't craft high-level gems to sell on the AH. The crafting cost in gold will make you more money if you sell the gold directly.
  2. Everyone who is selling high-level gems (at least perfect star gems, which is the market that I examined) is losing money right now.
  3. Don't buy gold on the AH. If you want gold, it is much more cost-efficient to buy other items and then sell to gold, as the market hasn't properly priced in the $2.5 per mil peg yet. For example, you could buy a perfect star emerald for $14.50, sell it for 7.8 mil on the gold AH, you get 6.63 mil after tax, essentially paying $2.19 per mil instead of the $2.5 per mil price. There are probably better opportunities in weapons/armors/elsewhere, but I just chose high-level gems as an example because commodities are abundant and liquid, so one doesn't need to go searching for a "deal".
  4. There seem to be price runs on the gold AH on flawless squares of every type, probably in anticipation of rising prices. Rubies rose over 300% and amethysts rose over 200% since yesterday (I made over 60 mil here in 1 day). Topazes seem to have risen about 300%, but I didn't buy into that market, so I'm not positive at what price they were trading yesterday. Emeralds rose a bit shy of 200%.
  5. The price of perfect star gems on the RMAH will probably go up (as mentioned, the largest component of cost, crafting costs, is a fixed cost, as is the floor-price of gold-to-USD). If you have a lot of excess bnet balance, you could probably buy a bunch of these in anticipation of a price rise. This is last point is tricky, however, because it assumes that the Diablo 3 market is rational and efficient, which I've proven many times over that it isn't.