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It would go to a GOOD ground! Either case of the alternator or somewhere on the engine block that has the the paint cleaned off so it gets a good ground.
Tell us more about the engine? Recent rebuild, are you sure it's a hydraulic cam? How are you setting the preload? If not a recent rebuild how old is the engine?
Is the engine even broken in yet? If not, I would see if you could get or use an electric fuel pump and break it in. Then worry about getting the mechanical pump working. To check the mechanical pump you would have to crank the engine over and check how much vacuum it draws. You could take this...
If you put the same amount of money into building a 318 that you would put into a 360, you would have more horsepower and torque in the 360 anyday! 360's are really cheep to buy and plentifull.
Just keep the 318 tucked away if you need it for originality.
Use a digital volt meter, ground to the alt. case first and check voltage at the alt. output. Should be 13.8 to 14.2 volts. (most likely you will have to have it about 1,200rpm for this reading)
Then check accross the battery and see what the voltage is.