Isn't mining more gold the same as printing more money?

[Pekelo]

Last night I was watching Built it Bigger. They visited the deepest mine ever on Earth in South Africa. That made me think of those who have fond reminiscences about the gold standard.

So when we mine and produce more gold, isn't that the same for a country with the gold standard the same as printing more fiat money??? Shouldn't the value of gold watered down by having more of it in circulation???

I guess some of the gold in usage gets lost and used for industrial usage, but nevertheless there should be more and more gold in circulation....

 

[bearice]

The demand for gold is ever increasing. I read somewhere that there is less than 1 ounce of gold per person in this world.

 

[Affix]

It has been estimated that all the gold mined by the end of 2009 totaled 165,000 tonnes. And global annual output stands at roughly 2500 tons, which is less than 2% growth y/y.

M2 in the us rarely goes below 5% y/y. In emerging economies, it is way more rapid, 20% annual growth rate is not uncommon.

And in a scenario where the fiat money is widely believed to be overvalued, people will hoard the strongest currency, gold. Which results in increasingly tighter supply of gold as prices go up. Another self-fulfilling prophecy.

 

[rosy2]

there's a fixed supply of gold. it doesn't matter if its mined or not

 

[peilthetraveler]

Even with all the technology that we have for mining gold today, we can only add about 2% more gold to existing gold stockpiles every year. Coincidently, the world population grows at about the same rate as the amount of gold we mine....2% or so.

The other guy was correct too...there is less than 1 oz of gold for every person on earth. Last year alone, the money printed just to cover the deficit would be enough to buy every american man woman and child 3 oz of gold at todays prices. And thats just for one year. The year before the government printed enough money to equal 5 oz of gold per man woman & child at last years prices. Thats alot of money printing!

 

[Pekelo]

Quote from bearice:

The demand for gold is ever increasing.

So does for food or clean air and water. You don't really address my question... If we mine more gold per year than the demand increases, its value should drop....

Also, what happens when there is a world war or calamity that quickly DECREASES the world population? Then the value of gold also goes DOWN, because there is more gold per capita???

Quote from rosy2:

there's a fixed supply of gold. it doesn't matter if its mined or not

Your first sentence is true, the 2nd one is incredibly incorrect. It makes a HUGE difference if it is in your vault or underground 12000 feet.

Now one could argue, that nowadays it costs so much to mine gold, that just the effort itself increases the value of newly mined gold close to its current price, thus no value inflation happens.

The other good argument is the increase of goods and population. But that is also valid for money, as long as the central banks don't print more money than the increase of goods, no inflation occurs...

 

[bearice]

Quote from Pekelo:

So does for food or clean air and water. You don't really address my question... If we mine more gold per year than the demand increases, its value should drop....

I think at present gold demand is more than supply so gold price have reached record high.

Quote from Pekelo:

Also, what happens when there is a world war or calamity that quickly DECREASES the world population? Then the value of gold also goes DOWN, because there is more gold per capita???

Good point.

 

[OddTrader]

Quote from peilthetraveler:

Even with all the technology that we have for mining gold today, we can only add about 2% more gold to existing gold stockpiles every year. Coincidently, the world population grows at about the same rate as the amount of gold we mine....2% or so.

The other guy was correct too...there is less than 1 oz of gold for every person on earth. Last year alone, the money printed just to cover the deficit would be enough to buy every american man woman and child 3 oz of gold at todays prices. And thats just for one year. The year before the government printed enough money to equal 5 oz of gold per man woman & child at last years prices. Thats alot of money printing!

I'd be very interested in the sources of the above data. Would you please provide some pointers? Thanks!

 

[rdg]

Quote from Pekelo:

Now one could argue, that nowadays it costs so much to mine gold, that just the effort itself increases the value of newly mined gold close to its current price, thus no value inflation happens.

It's more an issue of magnitude rather than sign. It currently costs ~$400/oz to "print" an oz of gold and essentially nothing to print $100 bills. Which one lends itself better to the possibility of a measurable change in money supply?

 

[Pekelo]

Quote from rdg:

It's more an issue of magnitude rather than sign. It currently costs ~$400/oz to "print" an oz of gold and essentially nothing to print $100 bills. Which one lends itself better to the possibility of a measurable change in money supply?

You are only arguing that paper money can be easily inflated. That is not the issue here. The question was, if we keep adding more and more gold to the world's supply, shouldn't that inflate the value of gold?

But I will make a counter argument that sometimes a society needs a measuring device that can be rather easily expanded. Let's say country X's population is increasing 5% per year. If gold supply only increases 2% annually, then their gold standard is going to cause deflation, because there won't be enough gold to pay for goods and services, thus the value of gold compared to the need will increase, causing a decrease (deflation) in everything, including goods and services.

With fiat money society can keep up with the increase and adjust accordingly...

http://en.wikipedia.org/wiki/Gold#Monetary_exchange :

"establishing gold standards in which the total value of issued money is represented in a store of gold reserves.

However, the amount of gold in the world is finite and production has not grown in relation to the world's economies. Today, gold mining output is declining. With the sharp growth of economies in the 20th century, and increasing foreign exchange, the world's gold reserves and their trading market have become a small fraction of all markets and fixed exchange rates of currencies to gold were no longer sustained. "

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So when the economy grows much faster than the gold supply, what happens to the gold standard???