What would the effect on the economy be if gold became abundant?

[LordShiva]

What if it was vegetable oil?

[Ecthy]

Olive oil über alles

Given the health-boom among the rich you might argue that olive oil will become more important to the world economy than mineral oil. But is that a question we ask? Can the "world economy" be determined positively?

[Aeson]

If you could turn paper towels into vegetable oil, the universe would explode.

[Ecthy]

Aeson, the universe is what you construct it as, especially if you treat paper towels as a totality.

[Provost Harrison]

It would be a great metal to have in high abundance - very resistant to corrosion and a good conductor with interesting optical properties. Shame it is too soft for any structural uses.

Worthless gold I've never understood why people have always assigned so much value to the stuff...

[Ecthy]

Because usually it wasn't abundant?

[Provost Harrison]

I was more referring to the demand side of the picture rather than the supply. It is so valuable because people covet it so highly. I've never really understood the fascination some people have with it, or "bling" in general...I find it a vulgar concept.

[Ecthy]

Demand and supply are not static or independant of each other. How much you will something also depends on how hard it is to get it. The bling is probably a part of it too, but doesn't explain it well enough since you can get a similar effect with other metals.

[Kidlicious]

Re: OP

The world economy would collapse. There's a very significant about of money invested in gold and gold would become practically worthless.

[Straybow]

Only about 80 million oz of gold are produced per year. At $1k/oz that's still a drop in the economic bucket. The world gold industry could collapse and in most countries few would notice.

Gold mining would shift to Ni and PGM, or shut down. Most mines are part of larger mining conglomerates, so relatively few companies would go entirely bust.

[Thue]

Originally posted by SlowwHand
What about diamonds? What if people decide they like quartz better?

The scenario where you can make artificial diamonds has already happened - it is possible to produce artificial diamonds relatively cheaply. The only way you can tell a produced diamond from one dug out of the ground is that the produced one is higher quality, ie purer.

What happened was that some diamond sellers decided that the artificial diamond was not real diamonds, since they didn't create an area of environmental destruction while being mined, and since they did not finance a civil war in Africa.

So the result is that if you go down to your local jeweler, the diamond he will try to sell you will be dug out of the ground, and much more expensive and lower quality than it has to be...

[Aeson]

That's still trillions in gold out there, since it doesn't just evaporate. (I have no idea how much gold is held as investment rather than "in use". Anyone?) Also all the gold stocks and metal indices/funds would go into the ****ter. It would do some serious damage. Much like the writedowns from CDO's. Only all at once since the stuff it would affect couldn't be hidden away in level 3 assets. Commodities and stock are mark to market. And in this case, the market would lose 99.9% virtually instantly.

You'd have investors and institutions getting margin calls... Fire sales on their holdings to pay for it, which can drive down the price of anything else they're holding. Sectors which go down or up strong tend to pull the rest of the market with them on sympathy anyways.

[Kidlicious]

Originally posted by Straybow
Only about 80 million oz of gold are produced per year. At $1k/oz that's still a drop in the economic bucket. The world gold industry could collapse and in most countries few would notice.

Gold mining would shift to Ni and PGM, or shut down. Most mines are part of larger mining conglomerates, so relatively few companies would go entirely bust.

The loss in mining income is nothing compared to the loss in wealth that would be caused by a market collapse.

[Straybow]

You do realize that commodities and futures markets are mostly zero-sum games, yes? One person loses money that another person gains in any given transaction.

The gold market is an indicator of sorts but is itself not a very big chunk of the whole. It would hurt, but the rest of the market would rebound.

[Aeson]

Originally posted by Straybow
You do realize that commodities and futures markets are mostly zero-sum games, yes? One person loses money that another person gains in any given transaction.

Stocks are no different in that regard. They only change price based on what someone is willing to pay for them. So no currency is "lost" (at least directly), even if the entire stock market went to 0. That doesn't mean there are no negative effects when a sector of stocks crash.

In this case, it would be both a sector of stocks, and commodities, that would crash. Associated indices would also plummet. It would result in wide-spread and massive margin calls. Fire-sales of assets that those affected would be forced into making. Big losses in many funds, and the failure of certain funds. Bankruptcies of institutions and investors who had too much exposure. (Even "low risk" exposure could be "too much" since no one expects $850/oz to <$1/oz overnight.)

Yes, all the currency in circulation would still be in circulation (cept maybe for some gold coins)... but we'd have lost a tremendous amount of actual value.