Agates are naturally formed in volcanoes when cave water rich in silica drips through the cavities between the rocks. This silica accumulates in small holes in volcanic rocks and over a long course of time, it fills the holes completely. The layers change to form microcrystals and this is what causes the banding. The colors of agate are due to changes in temperature, pressure and the matter collected during its formation. Agates fall into the chalcedony family which is a type of Quartz formation but differs in structure from normal Quartz.
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