That is a pretty bad way to run an economy.
No no no ... it is brilliant!
Are the more hardcore players, which includes those with lots of free time, going to spend real-world cash on gems? Maybe, but most will just say "eff it, I'll just grind the gold and buy the gems in game."
Now, will the casual people, who have less time to play ... who may have more disposable income ... will THEY pay with real-world cash for stuff they want? More so probably, yes. They want the cosmetic stuff.
Hmm ... won't those casuals just buy cheap gems with gold to get the stuff they want? Oh crap, yes they will! ... but wait! ... if the prices on gems go up so high they CAN'T buy what they want with in-game-gold, they'll HAVE TO spend real-world money on them!
*tweedle mustache, maniacal laughter*
Gems are fake currency, wholly manipulable by ANet. Gems are basically a Gift Card. There is no limit on them. If you believe there is one, then that is like (IMHO) believing that Starbucks one day will just say "sorry, you cannot buy that gift card .. we've run out of Starbucks Bucks, come back when a couple people buy some coffee with Gift Cards and we can give you theirs."
Then: think of in-game-gold as "loyalty points". When you collect enough of them, you can trade them for a Gift Card! So, spend enough time in game and slowly ... slowly ... earn enough points to get a freebie item from the gem store! Yay!
It is a closed system ... once money goes into the store, it never comes out. Since there is zero way for you to get your gems turned into actual money again, when you trade gems-for-gold, you're basically just trading a currency with a fixed value (gems always buy the same amount from the gem store) for a volatile one (gold-price-to-gems exchange rate fluctuates).
Now lets say you buy gold with your 800 gems ... and 2 months later gold-to-gem rate is more favorable, and you trade that gold for 1600 gems. HAHA! You just doubled your money! Well, honestly, did you? ... and should Anet care? You turned your fixed value Gift Card into twice as much in loyalty points then back into a gift card ... either way, you're stuck spending it in ANet's store on stuff that costs them zero to make/stock. The 2 days it took that art dude to design the armor before it hit the gem store didn't cost much ... they'll get that cash back quick.
I'm not sure I get what you're saying. Cheap how? The price for gems in real-world-money never changes. 800 gems today is the same price as 800 gems on day 1.
Do you mean cheap as in, how much gold it costs to buy gems?
Low gold price for gems = people convert gold into gems. Those people then buy cash shop items for gold, basically. They're paying zero actual money for the cash shop items. Anet is saddened by this. People are gobbling up the content they made to sell for real-world-money without paying real-world-money for it.
High gold price for gems = people buy gems with real world money. ANet happily accepts it and is collecting, basically, 'free money' because you're paying them real money for non-real-world currency (gems). People that use that for gem store items, or people turning those gems into gold (because you can get a LOT of gold for your gems right now compared to previously) doesn't matter to ANet ... either way ANet already has the money in their pocket. What you do with your Gift Card doesn't matter to them, you still can only use it in their store.