Wednesday, October 20, 2010

Stockpiling for Cata as a "store of value" and hedge against inflation

As alluded to in my previous post, the guys at Call to Auction were gracious enough to field a question from me.  I was a bit long-winded, but in short was trying to draw comparisons between the real world and WoW in how commodities are used as a store of value to hedge against inflation.

Store of value, you say?  Hedge against inflation?  Quaaid, you're going crazy and taking this too seriously!  You may be right about both, but there are very legitimate (and useful) conclusions that can be drawn from the real world into Azeroth.

The Real World

The example I used in my Call to Auction question was in, the precious metal that costs something like $1,350 per ounce these days.  Without regurgitating my long-winded statements/questions, the gist is that holding certain valuable commodities has two effects (for our purposes): 1) it guards against inflation, and 2) it's a safe haven.  $10,000 in 1970 was a lot then, and not so much now -- in the "needing to survive" sense -- however, if you plunked that $10k into gold back in 1970, you'd be in pretty nice shape today.  Alternatively, if you lived in a developing country whose currency was subject to hyperinflation (South America and Africa are ripe with examples), turning your money into gold would guard against that.  Regarding the "store of value", in the real world gold is a safe haven.  Go look at the price of gold since 2005 or 2008 and look at it now.  One can argue this point ad nauseam, but investors frequently flea uncertainty in equity markets by putting money into gold.

The Not-Real World
So, are there any items in WoW that act like real world gold?  Well, not really, or not any that would have the same impact.  However, there are some items I'm going to start stockpiling over the next month.  I am very concerned that my decent amount of gold now will become not-so-decent once inflation hits in Cataclysm (and, boy, will it ever).

Markco's response to my question above on the Call to Auction podcast was to listen to their last few episodes for items to stockpile.  He's right.  They've covered this a lot.  However, my unstated point was how do you dump gold now into something that can be easily liquidated in a few months?  The key point here is liquidated.  The two considerations in my mind are:

1) Liquidity.  Sure, you may throw 200k gold into a Swift Spectral Tiger and sell it in six months for 750k.  I think that's a real possibility and honestly not a terrible idea.  Yeah, the aforementioned concentration risk (see my other post from a couple weeks ago) is a headache, but I think you'd come out ok in the long run.  However, I want to toss gold into something liquid, such as cloth, ore, mats, etc. and be able to recoup that amount (and then some) a month or two after Cata drops.

2) Price-per-slot.  This is a real killer.  The most liquid items also tend to have low absolute value.  Saronite Ore can frequently be bought from the AH, turned into bars, and sold at a slight profit.  That's risk free.  Awesome.  However, the ore essentially vendors at 12g50s, meaning you don't get much bang for your buck per slot.  Sure, you could pre-smelt it into bars and then titanium, but see point #1 about liquidity.

So, the idea is to find items that are fairly liquid and yet yield a decent PPS for storing in your bank.

Things I Love
  • Enchanting mats and some scrolls - dusts and essences have demonstrated their ability to hold value in every expansion, and this one won't be any different.  I'll be holding onto raw mats as a good PPS and liquid investment. 
  • Scrolls - an adjunct to the above, enchanting is a powerful profession.  BoA gear creates an eternal market for old world mats as well as new world.  Plus, if Cata is like WotLK, there might still be a few worthwhile mid-tier enchants that sell (e.g., sort of how Mongoose does now).  These also stack incredibly well, so the PPS is through the roof.  Not as liquid as I would like, but should do ok.
  • Glyphs - "Quaaid, you're nuts, glyphs are still going for 40g to 50g and higher right now even a week after the patch!"  Why yes, good reader, they are.  They'll also likely complete their crash in a few weeks, and I imagine you can pick up some fairly cheap or just crank out your own if you have a scribe once herb prices settle down.  So, it can be assumed that most players currently playing will be fully stocked on their glyphs.  And what happens when all those people who quit in the pre-Cata lull come back in December?  Oh yeah, they'll need glyphs.  Others will get bored or frustrated and level new toons as well.  That guy that rolled a DK right away when WotLK came out?  Yeah, he'll be leveling a worgen too.  And he probably plays enough that he's not broke, so he'll get glyphs too.

Things I Like A Bit
  • Argent Tournament pets - not very liquid, but I think they'll store value really well.  I've sent a few Horde pets to Alliance side and can pretty reliably net 900g to 1,100g right now.  Given that Champion's Seals will dry up in Cata, and that these pets are pretty cool and should increase nicely over time.  The PPS is thus awesome.  I'll be fetching any that dip low enough, but this is more of a "buy and hold" item.
  • Saronite Ore - sure, I just said that the PPS is low, but Saronite has so many uses I still think it's low risk enough to justify stockpiling.  You can prospect it (best choice in my opinion), craft it for leveling sets, or just flat out vendor it.  It's versatile enough that I will devote space to it.
Things I Don't Like
  • Netherweave cloth/bolts/bags - with new bags apparently available pretty cheaply in Cata, I think those doing massive stockpiling of Netherweave are in for a jolt.  Yeah, it'll probably hold up ok, but the low PPS and high risk mean it's a no go for me.
  • BoE items - I've read that a few people are grabbing various BoE items to sell to goblin and worgen levelers.  I'm sure that'll work just fine, good luck.  However, the high deposit cost for most of these items and "hit or miss" approach is extremely unattractive to me.  Can you see that super leet level 49 axe for 100g?  Probably.  Did it just take up 8 weeks in your bags and another 20g in sunk deposits before selling?  Likely.
Anyhow, if this blog is to be useful, this is the kind of conversation I want to initiate.  There are a lot of gold bloggers out there now, and sometimes it's a bit cumbersome or intimidating to post on their forums or blogs refuting ideas or generating new ones. 

Oh, and because anybody that read this far probably needs a random crazy picture:

Happy Hunting!


  1. Great post and good suggestions!

    I'll probably comment on it on my blog today.

  2. Here's the post:

  3. Excellent post Quaaid and grats on being featured on MMO Melting Pot (I might have given them a nudge in your direction last weekend!). This is a topic I'm planning on covering myself in the next couple of days, so will make a response to you in full then. Keep it up!

  4. Another great post, Quaaid. How do you feel about titanium ore? I have hesitantly bought several stacks to store away for cata. Great value-per-slot in the bank, and people are unloading it right now cheap. The only thing I am concerned about is liquidity in cata. What are your thoughts?

  5. I think your wrong about netherweave, right when the expansion hits, no one is going to have the mats for the new bags yet. Netherweave is still a huge win

  6. Thanks for the comments, everybody!

    Moravec, I really appreciate your help in publicizing this blog and also your valuable feedback.

    Knminton, I don't feel so hot about titanium ore due to its fairly limited potential in Cata. Nobody will want epic gems, so prospecting isn't worth it. Crafting-wise, nobody will want the epic WotLK gear either, so the only real use I see is for shield spikes and weapon chains (and there will likely be a Cata version of those, I'd assume, although I haven't looked).

    Allen, I very much see your point, and thanks for your feedback. I think you're right that netherweave will be a win right after Cata launches. However, inflation won't be as severe then, so I'm not sure how much mark-up you can have on the bags versus now. Bags do move very quickly on my realm now, they're reliable sellers for sure. Usually around 11g and sometimes 15-16g. Nice little profit. I'm not sure how much that'll spike after Cata, but you're best to capitalize on it sooner than later and dump your netherweave before the new bags kick in.

  7. Quaaid, I did some research on WoWflation and went a bit overboard. For the bored:

  8. Heard your question on Call to Auction Episode 18. Converting gold into items which have high desire in future is a wise move. I don't know how much inflation will be at in Cata, but I'm guessing ~20%.

    Inflation comes in level cap 85 quest rewards and dailies. At the moment WOLK is ~13g (and up) per quest. I would expect more gold reward in Cata. Vendor price for crafting materials would make a difference as well.

  9. These lists are great.

    Two important points:
    1) inflation won't set in immediately (although the value of some leveling mats will likely spike)
    2) gold will be immensely valuable in early Cata for leveling professions.

    It's true that the cataclysm gathering mats will be astronomically expensive. But so will the top end crafted stuff. *Especially* if there's an artificial barrier to learning recipes (JC tokens, Insc cooldowns) which there almost certainly will be. If you can walk the fine line between being gouged by high material prices and leveling your professions quickly, you stand to profit handsomely from your market presence. Remember the early WotLK JC market? Yum.

    Just as it's unwise to invest all of your real world money in gold, don't hamstring yourself in the name of protecting yourself from inflation.