An Ounce Of Gold Equals Price Of A “Decent” Suit?

(IDEX Online News) – Believe it or not, but apparently the price of a “decent” suit is approximately equal to the price of an ounce of gold. At least, that’s the hypothesis proffered by Sionna Investment Managers’ aptly labeled Gold-to-Decent-Suit Ratio. With soaring gold prices, however, that theory may no longer hold true.

“The long-held rule in the marketplace is that an ounce of gold, historically, has been able to buy a decent suit. But then again, it may depend on where you shop,” says Sionna portfolio manager, Mel Mariampillai, who is part of the investment team that helped develop the concept.

Research by Sionna Investment Managers shows the cost of an ounce of gold in 1967 was C$35, exactly the same price as a decent suit from Eaton’s, a prominent Canadian retailer at the time. In 1975, gold weighed in at C$100 an ounce, a 1:1 ratio with a decent suit from Eaton’s during the same year. In 2009, the price of an ounce of gold in Canada soared to C$950, or the price of a decent suit at leading tailors during the same 12 months.

“Gold has been having an incredible run and what people really want to know is where it will go. Although no one knows for sure, we believe that the price of a decent men’s suit and gold will converge to the same level,” says Mariampillai.

On August 15, 2011, an ounce of gold cost C$1,723.19 ($1743.28), representing a higher ratio of 1:1.5 to a Burberry London men’s black wool two-button suit at Toronto’s Holt Renfrew, a high-end Canadian department store, which costs C$1,150.00 ($1163.41).

“Does the ratio now suggest that the price of suits will rise, or is the ratio signaling that the price of gold will fall? We know that wool prices have been rising recently, and this is expected to nudge up the price of clothing (including men’s suits) in coming seasons. Will it be enough to bring the ratio back to a 1:1 ratio? We don’t know for sure, but we do know that human nature creates price/value schisms and fuels volatility – especially in these types of markets,” says the firm.

“Is gold a little overpriced at the moment?” asks Mariampillai, who admits that only his tailor knows for sure. “But I will say that I can get a really decent suit where I shop for a lot less than the price of an ounce of gold these days.”