Abstract
In this paper, gold is investigated as a super- sovereign zero- coupon bond. A structural relationship between the gold and the observed yields on long maturity inflation indexed bonds is derived under the assumption that the gold price reflects the long run inflation level. This relationship can be interpreted as defining the fair value of the gold in an economy model where inflation indexed bonds are traded. A study of monthly real time decompositions of gold price into their fair value and risk premium components is directed by taking the theory to a data set spanning the period from April 2007 to June 2013. It is shown empirically that a rise of the gold price is contemporaneously associated with a drop of the inflation indexed bond yields and a rise of risk premium in appreciation of the gold.
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