The problem with gold is that it really isn't possible to value it in a particularly technical way. As Jim Grant points out, pretty much the only way to make sense of the gold price is to look at its value as being "1/n, where 'n' is the world's confidence in paper currencies and the mandarins who manipulate them." The problem? No one knows what 'n' is.
Edward Chancellor has a stab at valuing gold with reference to a few other things. He looks at it relative to its price of extraction (around $600 an ounce); to the price of bread; to the price of oil; and to the price of a good suit (over many hundreds of years, a good bespoke suit has generally cost the equivalent of one ounce of gold). On most measures it comes out as over-valued by 40% relative to the price of bread, and by 9% to the price of oil for example. All in all, Chancellor ends up reckoning that an ounce of gold should be worth less than $1,000 rather than the $1,400 it is currently knocking around.
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