Today's Guest Poster is Bozzor, all the way from Romania!
How to protect against Inflation and Deflation
Most people know what Inflation and Deflation are.Now, in WoW, we experience both of them and most of the times, even unaware, we are affected by them.Both of them are denting in your gold.In simple terms, Inflation is when prices are going up and Deflation is when prices are going down.
Now, unlike in real life, both Inflation and Deflation exist is same time in WoW, except that they are affecting different items.If you manage to understand how and why exactly Inflation and Deflation kicks in, you will at least protect your assets and gold (or make a lot of profit).
It is a known fact that every expansion and major patch bring along big spikes in the price of new items, due to the fact that everyone wants to skill-up their characters professions, get new gear, enchants, gems etc.There are not enough materials available in /trade or AH, the pro traders (and not only) are buying huge quantities of materials to skill-up their professions and be ready to use them while prices are extremely high (enchants, gem, buckles), farmers know that selling now is most profitable and keep their prices…All in all, its frenzy for like 2-3 weeks , before things begin to settle.
It is also a known fact that prices drops heavily before a new expansion or patch (depending on patch, some might go up, but not for long time).
Now, since between expansions and patches it is a considerable amount of time and any major changes in prices are taking place shortly before and after expansions / patches (hence the best opportunity to make profits or stockpile at very low prices), what are you going to do after those major changes, when Deflation will hit almost every new item ?
The answer is simple : Arbitrage (or Flipping as commonly known).The answer might be simple, but doing it it’s not that simple, because many will do the same thing.Once the craziness of every new expansion / patch starts dropping to normality, the prices also follow this pattern.However, you can safely flip items, because prices can vary 2-3 times / day or 2-3 times /week, depending on items.You need to understand that there are two major factors that drive prices : Farmers and Traders.
Farmers sell huge quantities of materials, lowering the price of base materials (ores, leather, herbs and cloth) while Traders buying those materials, craft items and sell at highest possible prices (except when they start undercutting wars on specific items).There are also times when the need for a specific crafting material rise and farmers are focusing on providing those materials, leaving a shortage for other (the farm more ores than leather, or more cloth than herbs, etc).
There are many influences on item prices, and only being prepared for when those times come, can protect you from Inflation and Deflation.The simplest things anyone can do is to skill-up their professions BEFORE leveling up and stockpile for long-term.
While skilling-up in first day (or days) of a new expansion its expensive, the benefits are much higher than the expenses.When Cataclysm went live, i spent 400k to max 5 professions (BS, JC, Alchemy, Enchanting and Inscription) in 3 days.However, in next 5 days i have made 800k selling crafted items from those professions.Same for Wrath (well, 200k spent and 400k made, but same profit mark, about 100%).
Stockpilling large amounts of previous expansion materials and wait until players start skilling-up their alts professions brought me a lot of gold, at 200-400% profit mark.
Doing only the above two things protects you from both Inflation and Deflation.Making huge amounts of gold in first weeks of new expansions and selling your stockpile slowly, at high profit marks it’s the least you can do.I agree, most cannot spend to skill-up 4,5 or 6 professions at once, but they can do it for at least one or two.Stockpiling, however, can be done by anyone, even if some can do it in thousands and other in hundreds of materials.
You need to find a balance between you gold and your stockpile.Be smart, have enough gold and enough stockpiled materials prepared for any new expansion / patch.I, for one, always try to keep a ratio of 75-80% gold in cash and 20-25% gold in stockpile.I have found that this ratio is the one that works the best.
I can’t cover all the specifics of how to fight Inflation and Deflation in WOW, it will took a lot of time and huge wall of text, not to mention that it will be hardly to understand (if it would be easy, anyone will have millions in WoW).
But the least i could do i did in this post.
Peace,
Bozzor, Gold Multimillionaire.
You can read more of Bozzor's writings over at :- www.auctionhousegoldstrategies.wordpress.com
3 comments: on "How to protect against Inflation and Deflation"
Anonymous said... November 28, 2011 at 2:01 PM
You're advice is sound, however the reasons and economics is off.
Inflation and Deflation are macro economic measurements. They measure the general buying power of a currency over a period of time. This means they do not occur at the same time. What your describing is more micro economic market fluctuations. Some of those changes can be cyclical (seasonal changes like gas being more expensive in winter and electricity in the summer) or not (like a market approaching saturation while supply remains steady or the converse.) There's a lot of money to be made if you guess right, and that's essentially what you're asking your readers to do - speculate. You're speculation advice is sound and people should make gold doing it.
If you want to guard against inflation/deflation you need to look less to the markets, but to Blizzard's handling of the money supply. This is where you need to pay attention to rewards and vendor prices plus the gold sinks like repair bills being added to the game. The response to inflation is to buy up items that will increase in price (but necessarily value) as money supply increases (haunting mementos are a good example), and the best way to guard against deflation is to sell everything early and horde your gold.
Since inflation has traditionally been the only game in town in the WoW economy, keeping gold you don't need immediately in a stockpile instead of liquid is the preferable idea. Just be mindful it might not be that liquid when you need it the most (like right after an xpat), and that the more gold you have, you'll either need more space or more valuable items. Even some materials from previous expansions can be used and a gold storage vehicle. I took a stockpile of adamantite and khorium ore into Cata and it doubled in price (but not value) because of inflation and nothing about the supply/demand changed. However Mithril dropped tremendously in value (real buying power) because Cata made this ore ridiculously easy to get.
Xsinthis said... November 28, 2011 at 11:06 PM
You can't have inflation and deflation at the same time, they apply to an economy technically, not specific items. Perhaps you meant that, price changes?
Bozzor said... November 30, 2011 at 4:27 AM
Ty for your comments...but both of you have either missreaded either didn't read the whole sentence :
"Now, unlike in real life, both Inflation and Deflation exist in same time in WoW, except that they are affecting different items."
As example, in WoW, we can have a drop in prices for volatile air, water, fire and pyrium bar but an increase on Truegold price.In real life, we cannot have a price drop for flour, salt and eggs and in same time a price increase for bread.
Also, in WoW we can have a price drop for Heavy Savage Leather and in same time a price increase for Pristine Hide.
I was right in my assumptions.In WoW, a player CAN buyout every truegold from AH, driving prices up even if the materials needed are having a price drop.
In real life...NOBODY can buy ALL the bread or ALL cars or ALL tv sets.
And this is why you can have BOTH Inflation and Deflation in WoW in same time...except that this occur for different items.
Bozzor.
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