The best model I have seen for gold prices suggests they are essentially a function of real interest rates. I have a blog post here that links to various discussions of the model, from way back in November 2010. 

Yesterday, May 16th, Bill Gross of PIMCO was on CNBC talking about the very same model for gold prices. The video is posted below.

I think Eddy Elfenbein of Crossing Wall Street deserves a lot of credit for this excellent model.

The Canadian Hedge Fund manager, head of Sprott Asset Management, lays out his thesis on Gold and Silver in this interview:

I think gold is the reserve currency today. There is not a currency in the world that it hasn’t appreciated against by at least 300 per cent. And it has beaten every stock market. You can’t even rent a safety deposit box in Germany because they are all full of gold and silver … I am pretty convinced that gold will go a lot higher because it is under-owned as only 1 per cent of people’s money is in it. It could go to $2,000 an ounce. I could imagine it at $5,000. I am not giving a time frame on that, but I could certainly see that happening. But the real story now is silver.

Why are you more bullish on that metal?

Gold has traded at a ratio of 16-to-1 to silver in terms of price, but today it trades in the range of 50 to 1. I think the gold-to-silver ratio is going to go back to 16 to 1 given the passage of time, say three to five years. And I bet you that silver overshoots. The gold-to-silver ratio may even get down to 10 to 1. I believe that the price of silver has been suppressed. 

Anecdotal evidence of a gold bubble: Bloomberg interviews Mr. T on gold

Buffett: "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?

Let's get wonky.

Eddy Elfenbein published an interesting model for gold prices on his blog Crossing Wall Street.

The model was expanded on by Michael Stokes of MarketSci Blog, which is one of my favorites.

Further comment by Jakes's EconomPic.

Edit 11-2-2010: More from MarketSci - Can you trade it?