Abstract
For investors, gold is an asset without a yield that is attractive in times of low and negative real interest rates. Gold also has an embedded put option because investors can sell it to those who value its use as jewelry or as a productive input. This paper presents an approach for pricing gold from investors' perspective based on no-arbitrage principles. There is no need to specify investor preferences and the main input for pricing gold is a term structure model for real interest rates. The model implies that on average more than half of the value of gold is due to its role as an investment asset. When fitted to match 10-year real US Treasury rates the model can replicate the salient fluctuations in the time series of gold prices since 2007.
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