How much should gold price be?

Watching the price of this "precious" metal tumbled 28% in 2013, its first drop in price during last 13 years, one would easily wondered, what should be the price for this metal, where its active function is for decoration and industry use? 

There are several ways to estimate the price of gold, i will try present two of the most prominent one. 

Case 1: If gold is considered inflation-hedge, gold price should change according to inflation rate. 

We can start with year 1945, where Bretton Wood Monetary System officially fixed price of one troy ounce gold to be $35. And inflate/deflate the price of gold according to Consumer Price Index (CPI) in US every year. US CPI data can be extracted from United States Department of Labour Bureau of Labour Statistics. The results are as follow: 

Year 1970-71 is the year where US suspended the convertibility of Dollar to Gold. Note that the price of gold should already raised to a level, where defending the fixed conversion rate of $35 per troy ounce is no longer sustainable. For year 2013, the price of gold according to inflation hedge would be $460. This should be the bottom line for the gold. 

Case 2: If we are returning to a system where all circulating currency (M-0) is to be backed up by gold, price of gold will be sum of circulating currency divided by total amount of gold stock above ground. 

Mike Hewitt at DollarDaze had done an analysis on the potential price of gold using the above method in this  post. We just need to update the figure into 2013. Assuming paper money growth at 6.6% per year, and above ground gold stocks growth at 2.1 % per year, we will have $ 5.23 trillion of M-0 money, and 178570 metric tonnes (5741 million troy ounces) of gold stocks above ground. This translate to price per ounce of $911.1. 

James Turk from Gold Money Foundation argued that the total amount of gold stocks above ground is smaller than GFMS estimate (which used by Mike Hewitt analysis). The revise amount translate into 161500 metric tonnes (5193 million troy ounces) of gold at 2013, resulted in price per ounce of $1007. 

Two Year gold price chart- source: Goldprice.org

Conclusion?

The actual transaction price of gold depends on the supply and demand in the market.
According to uncited word at wikipedia, 50% of gold is consumed as Jewelry, 40% "consumed" as investment and the remaining 10% consumed in industry.
Jewelry consumption is expected to remain strong considering strong buying attitude from India and China due to cultural influence.
However, investment "consumption" would remain weak for the foreseeable future, due to Fed start tappering their QE which will reduce fuel for inflation.
Hence, bearing unforeseeable geopolitical risk events/financial disruptions,  i shall predict the price of gold to continue fall into $1050 level for year 2014.

Disclaimer: The above statement shall not be taken as formal investment advice and i shall bear no responsibility of any loss resulted from investment action based on the statement.