I realize that few, if any, currencies are backed by gold any more, so it wouldn’t necessarily spell doom if someone discovered, say, eighty billion tons of the stuff, but there might be some economic shocks from it. After all, jewelry would lose much of it’s value, since gold would now be so cheap. Of course, I could be wrong.
Lots of people own gold as a safeguard against inflation. Those people would see their investments evaporate.
According to the Gold Information Network the price of gold peaked in 1980 ($595) and had fallen by half by 2001 ($271) - and more in constant dollars. This is a collapse in most people’s understanding of the word. Other than those people who deal with gold professionally, no major affects were felt.
So what do you mean by “collapse”? Gold prices have an intrinsic component that comes from its usefulness, comparative rarity, and processing costs. Even huge strikes of gold would only drive that down by so much.
The speculative component varies a lot more. The 2005 price just topped $430 an ounce, and presumably all of that rise is from speculation. But it’s hard to see that a nearly 60% rise has affected anything either, unless you’re in the business.
But let’s say that gold prices fall to silver prices, about $6 an ounce. People still like silver jewelry, silver place settings, silver trophies, and other items.
Jewelry also has some intrinsic value plus other values - artistic, historic, sentimental. Cheap jewelry would be even cheaper if gold prices fell, but major works of art based on gold would probably retain their value.
So my guess is that mostly nothing would happen.
The total world gold supply is currently around 120,000 tons. So eighty billion tons of new gold would tend to diminish its value as a precious metal. Gold does however have a number of useful characteristics for industrial use. It would replace other metals in electronics for example. For that matter, in the quantity described in the OP, gold would probably replace aluminum as the metal of choice for wrapping up leftovers.
What I mean by collapse is that price for a pound of gold is the same as the price for a pound of aluminum: a few pennies. I can’t really see much of a demand for it then.
For most small items of jewelry, like rings and earrings, the cost of the raw gold contributes only a small portion to the total. The workmanship, and, in some cases, the stones used are worth much more. I think people’d still want gold jewelry, but the people who have invested in it as a hedge against inflation would be hosed.
If gold was as plentiful and cheap as aluminum you would see fare more of it in practical use, due to its electrical conductivity and chemical inertness.
Precious metal standards would switch to silver and platinum.