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

[Straybow]

No, stocks represent fractional ownership of a company that has some kind of profit-making operation. The value of the stock is a bit of a game, but it isn't a zero-sum game.

Commodities markets rarely involve the actual goods changing hands or performing a profit-making function. They are mostly futures or day-trading contracts.

[Aeson]

The money in a market is a zero sum game though, in the way you were talking about:

"One person loses money that another person gains in any given transaction." - Stray

This is the same thing with stocks. Even with dividends, one entity loses money (corporation) that another entity gains (shareholder). No currency is created or destroyed in the process, only transferred.

You can't discount a commodity crash as not being a "loss in wealth". By your reasoning, the only "loss in wealth" would be contracting the money supply, but that is obviously not the case. There are goods and services rendered that have inherent value. The loss of such is a real loss in wealth to those who possess them and the economy as a whole.

More directly than increasing or decreasing the money supply even.

[Soltz]

Going back to the original question, I read once that this scenario actually happened when the Spanish were plundering gold from the Aztecs and bringing it back to Europe.

[Whoha]

I think that was silver(thats what Colonization says ). I don't think that gold ever collapsed, but that they ran out of gold that they could loot.

In any event the price would crash, and it would help out anything that uses gold like circuitry.

[DAVOUT]

It seems that there is a confusion about the expression “one person loses money” that I understood in Straybow’s sentence as “one person makes a loss” and Aeson translates by “one person loses bank-notes”, even using later the world currency. I think that we do not need referring to currency to explain the allocation of profits in the stock market game.

[Kidlicious]

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.

Huh?! Financial wealth can disapear in a blink of an eye.

[Straybow]

Most of the transactions on commodities (including "money" as a commodity in Forex) are little more than bets on which way and how far the market moves. Each transaction has a counterpart who essentially bets against you. Either you win money, which comes from the counterpart's portfolio, or you lose money which goes to the counterpart (less the "spread" which goes to the brokerage). Of course, sometimes the brokerage itself acts as counter.

[Dauphin]

That's a rather simplistic way of looking at it.

Try purchasing 'commodities' where/if there were no such market. (i.e only those wanting to take physical delivery)

[Aeson]

He's also ignoring that that is how the stock market works too. You don't take physical possession of the portion of the company you "own" either.

[PLATO]

While the gold standard is "dead", that does not mean that a large amount of currencies are still supported to some extent by gold reserves. I think Kid has it right. A collapse of Gold would have dire consequences for the world economy. It is not something that could not be recovered from, but it certainly would cause massive currency instability and probable economic collapse in a large part of the world.

[Kidlicious]

Originally posted by Straybow
Most of the transactions on commodities (including "money" as a commodity in Forex) are little more than bets on which way and how far the market moves. Each transaction has a counterpart who essentially bets against you. Either you win money, which comes from the counterpart's portfolio, or you lose money which goes to the counterpart (less the "spread" which goes to the brokerage). Of course, sometimes the brokerage itself acts as counter.

Sure, but someone still owns all the gold in the world. And who's betting that gold will be $5 and ounce?

[Straybow]

Originally posted by Aeson
He's also ignoring that that is how the stock market works too. You don't take physical possession of the portion of the company you "own" either.

No, I'm not. A substantial part of the stock market (including the mechanisms that drive stock values) are futures and similar derivatives, but the greater part of stock transactions are purchases rather than derivatives. Not so for the gold market.

[Aeson]

Originally posted by Straybow
A substantial part of the stock market (including the mechanisms that drive stock values) are futures and similar derivatives, but the greater part of stock transactions are purchases rather than derivatives. Not so for the gold market.

It's an irrelevant distinction to what you were arguing.

"One person loses money that another person gains in any given transaction." - Stray

When you buy a stock, you give money to someone else, who is selling the stock. If the stock price crashes, the person you bought the stock from "makes" the money you "lost". Selling an appreciating asset is a loss, selling a depreciating asset is a gain. This becomes very apparent when you look at short sales of stock.

Also, you don't "make" money on stocks until someone buys them from you. Just sitting on an appreciating asset affects your wealth, but to lock that in, you have to close out your position.

There is no actual money created or destroyed in the process, only transferred. But the underlying value changes all the time.

This is no different in that regard than commodity markets. The underlying value changes all the time, affecting wealth distribution. If you take that underlying value away, it's a real loss in wealth, regardless of what types of contracts are used to describe or facilitate ownership of the underlying.

[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.

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.

In commodities you are essentially exchanging purses with another player in the game. You exchange $10k (or some other arbitrary figure) worth of money (on a margin account) for $10k worth of gold (that neither party possesses). The price moves and you make or lose a hundred dollars, give or take, which comes from or goes to the counterpart. Every once in a while somebody actually buys or sells the commodity, but that is some tiny fraction of the market.

With derivatives you buy the right to purchase at a certain price, and if the stock moves so that the current price plus your option charge is above the call value, you exercise the call and make money. If it doesn't rise that far you lose some money. (Or you buy the right to sell at a certain price, etc.) You and the person you buy the call/put from are betting on the price at some designated future date. Your profit might be unrealized profit from an existing shareholder, or the counter may not possess the stock and have to buy at market price and sell to you at the call price. Either way, it is a zero-sum equation.

[Aeson]

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.

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?