Guild Wars 2

Since Arena Net is pretty tight lipped about the currency exchange, it’s hard to tell how much gold is entering or leaving the market. Earlier tonight I purchased ~1000g in gems http://www.gw2spidy.com/gem . I should have done this sooner but after reading the patch notes I felt that I had too much of my net worth tied up in gold. When I made my purchase, the price spiked up as I would have expected. However, I did not expect it to almost instantaneously return to the same level I purchased at. It’s entirely possible that someone was refreshing the exchange, waiting for such a spike to convert gems to gold. However, I think it more likely that Arena does not want the price increasing too fast, and potentially discouraging other people from converting gold to gems, which leads to the main reason of my post.

If Arena is more actively involved in the currency exchange than they have led us to believe, then we have no insight to how much gold is leaving the economy. This means we will have little warning of a market downturn and as long as Arena keeps us in the dark, we’ll have to rely on our reasoning, and based on that I think we face a significant chance of deflation in the market.

https://forum-en.gw2archive.eu/forum/info/news/Game-Update-Notes-December-14-2012/first#post999247

Reasons for Deflation

1) More gold will be converted to gems than gems converted to gold.
A. In my opinion gold is still too expense in terms of dollars. At the current rate, it would still cost you 75$ to buy Commander and 80$ to buy a guild bank with 250 slots. I think we’ll see our first hard floor around $50 for Commander and seriously doubt Commander will ever cost less that $20.
B. Arena Net is marketing gems to a new group of people, traders. Previously, the Gem store offered very little that I cared about except bag space and character slots. However, now they have added items that I actually have some interest in, made more of the drops from chests sell-able, and added “gold drops” for the gamblers. I’m pretty risk adverse but If you have pockets that are deep enough, you could theoretical figure out the break-even point on BLC.

2) Arena has heard the cry of their people and decided increase the supply of some T6 items that drop from containers. Since they’ve caved on this, they may increase supply on other items that they deem are over priced.

All this being said, I think it is a dangerous time to be trading over night. I’m not saying don’t do it, it’s just that the risk of a loss significantly increases as you enter a bull market. Instead of looking at the average low spikes on spidy, you’ll be trying to predict the new low spike. If we do enter a deflation period, gold is a good place to hold your wealth. However, if you care about the gem store, I’d recommend you hold some of your wealth in gems as well because I do not anticipate this ratio to improve. You also might want to consider holding low valued tier 1&2 raw crafting materials while staying away from any of the more expense tiers. Of course, I could be wrong about this but I’ve already taken my own advice. I’m holding gold, gems, and low valued crafting materials, and a few long term value based investments. If you can keep yourself liquid, you’ll be ready to take advantage of very low priced items when the market does swing back.

Logun.5360:

2) Arena has heard the cry of their people and decided double the amount of some T6 items that drop from containers. Since they’ve caved on this, they may increase supply on other items that they deem are over priced.

•The quantity of vials of Powerful Blood, Vicious Fangs, and Elaborate Totems that drop from loot containers is now 1-2 instead of just 1.
Just to clarify it’s these 3.

edit; I think if blood and totems come down to a point of say 12 silver, more people will start using them for crafting gifts, raising the need for the other tier6 mats that did not get their droprate increased. That would mean powerful venom sacs( fluctuating between 16 27 yesterday alone on european market) and vicious claws might go up quite a bit.

Jiro.6589:

•The quantity of vials of Powerful Blood, Vicious Fangs, and Elaborate Totems that drop from loot containers is now 1-2 instead of just 1.

Just to clarify it’s these 3.
.

Corrected, thanks

Your off on your analysis on a few key parts.

Gold > Gem or Gem > Gold conversions can actually cause inflation.

MV = PQ (this is the equation for inflation)

M is the nominal quantity of money.
V is the velocity of money in final expenditures;
P is the general price level;
Q is an index of the real value of final expenditures (wiki page)

The one thing conversions can do that isn’t being looked at is increase the velocity of money. People who trade gold for gems might spend more than average people.

xxxzavulonxxx.8413:

Your off on your analysis on a few key parts.

I prefer the more simplistic version of Equation of Exchange. If gold is being destroyed at a greater rate than it is being created then it will decrease prices. There are only a few ways that gold enters the economy; farming, $$ to gold, and magic money fountains from Arena Net; like the useless tonics into gold during Halloween, or butter in gold right before it. So if M=P and money supply decreases then prices will decrease.

Quantity Theory of Money

The Quantity Theory of Money was
a bit of Classical theory based around the Fisher
Equation of Exchange. This equation stated that:

MV = PT

where:
M is the amount of money in circulation
V is the velocity of circulation of that money
P is the average price level and
T is the number of transactions taking place

Classical economists suggested that V would be
relatively stable and T would (as we have seen
above) would always tend to full employment.
Friedman developed this and tested it further,
coming to the conclusion that V and T were both
independently determined in the long-run. The
conclusion from this was that:

[^] M [—>] P [^]

~cheung

I just wanted to make sure we’re talking about the same thing. Are you talking about the price of gems inflating or the avg. price of the market? Because I’m talking about the market.

Lets look at Charged Lodestones. They have had pretty drastic spikes within the last week or so.

I don’t know if it is people converting real life money or TP speculators cashing in their large sums of money for legendaries, or what not. However, there is a lot of money being injected to that particular market somewhere. Which is velocity (the movement of money in the current money supply)…

On smaller scales when there are large amounts of buyers (which is what happens when people exchange gem for golds) the velocity would tend to swing upwards.

It is hard to say what the overall situation is in terms of the money supply currently is without data from Anet to examine though.

xxxzavulonxxx.8413:

Lets look at Charged Lodestones. They have had pretty drastic spikes within the last week or so.

I don’t know if it is people converting real life money or TP speculators cashing in their large sums of money for legendaries, or what not. However, there is a lot of money being injected to that particular market somewhere. Which is velocity (the movement of money in the current money supply)…

On smaller scales when there are large amounts of buyers (which is what happens when people exchange gem for golds) the velocity would tend to swing upwards.

It is hard to say what the overall situation is in terms of the money supply currently is without data from Anet to examine though.

XXX,

I’m talking about a future event that we haven’t seen yet. Even if we do see deflation in the market, that doesn’t mean certain items will not increase during this time period, only that the over all average price of goods will be lower. I’ve started tracking the 128 Raw Fine Crafting materials on the AH as of the 13th and I’ll keep taking snap shots of this sector of the market around the same time each night. I should be able to determine the trend over the next couple of days, which I’ll report here.

An increase in the rate of exchange between gold and gems will affect price level to the extent that the exchange destroys gold. I do not imagine that this rate is significant enough to exert noticeable pressure on the price level.

Increased drop rates put downward pressure on the price level; toy monetary model constant MV, rising Y (efficiency), hence lower P.

Exchanges can react very quickly to spikes and also recover very quickly, depending on the time constants built into their model. Without knowing either the constants or the volume traded on the gem/gold exchange we can’t say a whole lot of value about the other.

Logun.5360:

Since Arena Net is pretty tight lipped about the currency exchange, it’s hard to tell how much gold is entering or leaving the market. Earlier tonight I purchased ~1000g in gems http://www.gw2spidy.com/gem . I should have done this sooner but after reading the patch notes I felt that I had too much of my net worth tied up in gold. When I made my purchase, the price spiked up as I would have expected. However, I did not expect it to almost instantaneously return to the same level I purchased at. It’s entirely possible that someone was refreshing the exchange, waiting for such a spike to convert gems to gold. However, I think it more likely that Arena does not want the price increasing too fast, and potentially discouraging other people from converting gold to gems, which leads to the main reason of my post.

If Arena is more actively involved in the currency exchange than they have led us to believe, then we have no insight to how much gold is leaving the economy. This means we will have little warning of a market downturn and as long as Arena keeps us in the dark, we’ll have to rely on our reasoning, and based on that I think we face a significant chance of deflation in the market.

Firstly, thanks for the analysis Logun. I’m not sure however that what you described happening with gold → gem prices can be laid at ArenaNet’s door.

Gems have been constantly rising over the past month, in part because there were a lot of people stocking up in anticipation of Wintersday. Some of those people would have been doing so for speculative purposes, so it’s quite within the realms of possibility that one or more of them “cashed out” not long after you bought your gems.

I am also unable to think of a good reason for ArenaNet to intervene in the gold → gem market in this manner except perhaps to remove gold from the economy to rein in inflation. While this is a possibility, I don’t think it likely that ArenaNet would make this sort of intervention in the economy at this stage of its development.

This is not to discount everything you’re saying about deflation however. There may still be a lot of gold leaving the economy during the Wintersday event.

As a side note I’ve opened about 100 sacs since the patch, and had only single T6 materials. If they did change it I doubt its a 50/50 chance of gaining 2xT6 mats…

I agree that the gem to gold ratio probably won’t decrease substantially in the long run, although we could be in a small Wintersday high. There’s more people buying gems with gold right now just because of the new shiny in the BLTC.

I’m also not sure how the addition of the permanent hair style contract, trader pickup, etc. will affect the gem→gold market. They give a new reason for people to buy gold with gems, and could help restrain gem→gold price growth.

That being said, holding a decent amount of gems serves as a great hedge against inflation if you’re so loaded with money you can’t do very much with it practically (i.e. Logun, but you should reasonably be able to get a better return investing in the TP in the long run otherwise

I was wondering why prices were so wonky in my niche. I’m seeing 300% spreads in certain silk armor items. It could be the result of people cashing in inventory for gold for gems for Wintersday shinies.

Since this time Friday night, the avg. price of the 125 crafting materials I’m tracking have dropped 6.56%. This is a very short period of time and it could just be the Sunday night blues but I’ll keep you posted.

Logun.5360:

Since this time Friday night, the avg. price of the 125 crafting materials I’m tracking have dropped 6.56%. This is a very short period of time and it could just be the Sunday night blues but I’ll keep you posted.

No surprise. Seems like they increased droprates.

The market is down 4.51% from this time last night and 10.77% since I started tracking it on 12/13.

But it would seem that I bought gems at the worst possible possible point