Gems

Sources

Gems can be collected from several sources throughout the game, including:

Immediately upon entering the forest
- + up to your level #
After killing a monster or player with a powermove or special skill
- +1
If you use the Jennie cheat code FOXY
- +1
After successfully slaughtering another player who had gems in his/her possession
- +half their gems on hand
Acquired in the forest as a special/random event while (L)ooking
- +1
As a reward for a successful tower rescue
- +3X your level
As one of four possible blessings from the fairies
- +2

Gems can be used in a couple of ways to enhance your character's attributes.

Most commonly you can trade two gems to the bartender for a one point increase in Hit points, Strength, or Vitality (defense)
In the forest one may be traded to an old hag for a one point increase in hit points if you completely healthy (running into the hag is a random event)
As a thief, in the forest one may be traded to the guild for a one point increase in your thief ability (running into the guild is a random event)

Gem strategy depends on your level, class, and playing style. Below are some reasonable suggestions.

Keep at least one or two gems on hand while in the forest in case you run into a hag or into the guild as a thief
Since a hit point costs only one gem if you find the old hag, buying a hit point for two gems from the bartender should only be done when necessary--this should only matter at low levels, when one Hit Point is a larger % of your total HP
Since attack strength can be raised for free by the Hammer stone forest event, buying an increase for two gems should only be done when necessary--usually on level 12 to prepare for attacking the dragon
Proactively go after the prince/princess rescue. Unless you need high spirits, always ask where the prince/princess is from the Olivia event. Enough gems won can equal a free equipment upgrade.