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

[Dauphin]

Originally posted by Straybow
Except that stock is also the ability to vote in company shareholder meetings, may pay dividends, and also represents a fraction of the value of the company which can buy its own stock back from you. Does Gold buy itself back from you? No.

Companies buying back stock is not really different to a company paying a dividend, except for tax purpose. Secondly, when a company pays a dividend the share price in general goes down in value as much as the dividend per share. Thirdly, how much do you really rate the voting right? Personnally I think it is diddly squat except for institutional investors.

If you buy at $50, then the price falls to $15 a year later and I buy from you, do I somehow "make" the $35 that you lost? No. Did the guy you bought from make $35 a year after he sold it? No. His profit depended solely on his purchase and sale prices. He may look at the paper and say, "Good thing I sold last year and cut my losses," because he bought at $60.

The person who sold at $50 would have done (in opportunity cost terms and arguably in real terms) if he bought the gold back from you at $15. Which would be sensible as gold is cheaper and will very likely raise in value again.

Of course, all this implies that people buy gold as an investment opportunity, they don't, they buy it to avoid risk and negative growth in asset values - which is why gold prices tend to be inversely related to stock prices.

[One_more_turn]

Gold price would plunge.

What's abundant is not worth fighting for.

[snoopy369]

The worst part about a gold collapse would be that all of the people who depend on Gold as their 'safe haven' would suddenly lose their safe money - probably lots of retirees and such. People, as Dauphin states above, buy Gold because it will not depreciate in value, not to make money speculatively...

[Straybow]

Originally posted by Dauphin

If you buy at $50, then the price falls to $15 a year later and I buy from you, do I somehow "make" the $35 that you lost? No. Did the guy you bought from make $35 a year after he sold it? No. His profit depended solely on his purchase and sale prices. He may look at the paper and say, "Good thing I sold last year and cut my losses," because he bought at $60.

The person who sold at $50 would have done (in opportunity cost terms and arguably in real terms) if he bought the gold back from you at $15. Which would be sensible as gold is cheaper and will very likely raise in value again.

Of course, all this implies that people buy gold as an investment opportunity, they don't, they buy it to avoid risk and negative growth in asset values - which is why gold prices tend to be inversely related to stock prices.

Errrm, that was the stock example where a price drop does not generally recover but is a sign of severe trouble. The gold commodity trade is the example that followed.

Besides "would have done" is the gotcha of trading. Like all the poor sobs who bought at $600+ in 1980 and it took 26 years for the price to return to that level in real dollars (it would have to get to $2000+ in 2008 dollars to break even after inflation).

[Straybow]

Originally posted by Aeson
All of these things either have nothing to do with exchange of money, or function the same way. No money is created or destroyed in the process. It is a zero-sum game.

It's getting pretty funny that you can't understand this. Do you really think that money magically appears in the stock market when stocks appreciate in value? Do you really think dividends magically create money?

Ah, so when the farmer sells grain, he's just exchanging one form of money for another and his land and labor produce no wealth. And when the grain is ground and sold as bread in the supermarket no wealth is created. Etc. And when the bread company issues stock, that price has nothing to do with the bread they produce. And when the stock price goes up and down, it is just a ponzi scheme perpetrated by those eeeevil capitalists!

Stock prices loosely but ultimately come from the value of products or services provided by the company of which the stock represents ownership. That is real production of wealth. It's sad that you don't understand this.

[Aeson]

Originally posted by Straybow
Ah, so when the farmer sells grain, he's just exchanging one form of money for another and his land and labor produce no wealth. And when the grain is ground and sold as bread in the supermarket no wealth is created.

You're arguing against yourself here. Grain is another commodity, and now you're arguing against how it's real value, when with Gold you are arguing that it's not real value.

They're both commoditized and traded on exchanges. Your position is the one that denies that the underlying has actual value. I had already pointed out several times that underlying has actual value, in regards to both stocks and commodities. Of course you can't read, so you missed that.

As for the "zero sum", we were talking about the exchanges. You wanted to pretend commodity markets were "zero sum" because no money was created or destroyed in the process, only transferred. Well that's the same for the stock market as well. (And your grain commodities too.)

Feel free to continue arguing against yourself though, it's great fun to watch.

Stock prices loosely but ultimately come from the value of products or services provided by the company of which the stock represents ownership. That is real production of wealth.

That doesn't change the fact that the stock market operates in the "zero sum" manner which you attribute solely to commodities markets.

Gold is real wealth. Mining Gold is producing more wealth. Reducing Gold to being worthless is destroying wealth, even though no currency (other than Gold currency) is lost in the process. Your argument that it is otherwise is inane.

[snoopy369]

Gold is real wealth. Mining Gold is producing more wealth. Reducing Gold to being worthless is destroying wealth, even though no currency (other than Gold currency) is lost in the process.

It's a bit more complex than that. Once gold is mined and initially sold, the 'wealth' from mining it is no longer relevant. Thus, I would say that if gold were suddenly devalued, no actual loss occurs (globally), except that there would be no (or less) further value in continuing to mine gold. The 'loss' would be simply in that gold no longer had the value to be traded for.

The 'loss' of real wealth would come down to the person who brought in the big hoard of gold, really - similarly to oil now, they'd have the choice of slowly putting it on the market and getting the most out of it, or dumping it and losing a lot (but getting more up front). The difference is that Gold does not go away once bought, while oil does...

[Aeson]

Snoopy, all you are saying is that no currency is created or lost. Which is what I was saying.

The underlying value is lost though. It is a real loss of value. Just as much so as if any other asset depreciated in value. (Even though Gold prices don't always behave this way currently, since it is viewed more as a "constant" value. But that would obviously not be the case if it's inherent value was depreciated by limitless supply.)

[snoopy369]

I disagree. Underlying value is lost when something is used up, or damaged, or otherwise not as useful anymore. Gold's underlying value is still the same; you can still make the same jewelry out of it, still make the same wire or whatnot.

I suppose it would lose some value as a currency trade mechanism, in that much of its value is in its utility to facilitate trade (the fact that it is a currency itself, basically); but that's all that would be lost.

[Aeson]

You would still pay 850/oz for Gold? When it could be produced for virtually nothing?



I would have LOTS of Gold to sell to you.

[Provost Harrison]

Originally posted by snoopy369
I disagree. Underlying value is lost when something is used up, or damaged, or otherwise not as useful anymore. Gold's underlying value is still the same; you can still make the same jewelry out of it, still make the same wire or whatnot.

I suppose it would lose some value as a currency trade mechanism, in that much of its value is in its utility to facilitate trade (the fact that it is a currency itself, basically); but that's all that would be lost.

It's an issue of supply and demand...if the supply is unlimited (or for all intents and purposes unlimited) then it will become cheap. It is why water is cheap despite demand, as you can imagine, being pretty high

[Xorbon]

Goldschläger would be cheaper!

[Straybow]

Originally posted by Aeson
You're arguing against yourself here. Grain is another commodity, and now you're arguing against how it's real value, when with Gold you are arguing that it's not real value.

You're not paying attention. I'm saying that day-trades or short term derivatives that do not do not exchange actual product are zero-sum. By definition, no wealth is produced in such transactions, only transfered from one party to another.

So the question then arises, what portion of trades in stock vs commodities are of the zero-sum sort? The answer is that the majority of stock trade volume is actual transfers of stock by big players. The majority of commodities activities are zero-sum day trades and derivatives. When it comes to precious metals, the vast majority of trades are zero-sum.

As for the "zero sum", we were talking about the exchanges. You wanted to pretend commodity markets were "zero sum" because no money was created or destroyed in the process, only transferred. Well that's the same for the stock market as well. (And your grain commodities too.)

Feel free to pay attention to the whole argument. It might help.

Gold is real wealth. Mining Gold is producing more wealth. Reducing Gold to being worthless is destroying wealth, even though no currency (other than Gold currency) is lost in the process. Your argument that it is otherwise is inane.

My argument is that the size of the gold market (undeniably huge) is disproportional. World gold production of ~300k oz/day is about 2% of the London gold market volume of ~15M oz/day. Production and actual exchange of metal is small enough that the effect of gold devaluation would not be horrendous to the economy as a whole.

[Dauphin]

Originally posted by Straybow
Errrm, that was the stock example where a price drop does not generally recover but is a sign of severe trouble. The gold commodity trade is the example that followed.

Besides "would have done" is the gotcha of trading. Like all the poor sobs who bought at $600+ in 1980 and it took 26 years for the price to return to that level in real dollars (it would have to get to $2000+ in 2008 dollars to break even after inflation).

Fundamentally there were no difference in your examples, which lead to confusion. When you buy gold you tend to buy it as paper, so I assumed that's what you were talking about.

I then compared to gold as non-investment commodity, which is why it is different to shares.

Regards the recovery issue, yeah, you lose, but that's no different to shares. How much you lose is also different in the example discussed, and the would have is quite simple - he can just do it there and then in the example provided.