Gold's Value as an Investment

41 Pages Posted: 1 Oct 2021 Last revised: 30 May 2023

See all articles by Urban J. Jermann

Urban J. Jermann

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 30, 2021


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. The model is based on no-arbitrage principles with minimal structural assumptions. There is no need to specify investor preferences. 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. The model is also able to capture key patterns of CME Comex gold futures prices from
about 1990 onwards. The model implies that the majority of the value of gold is due to its role as an investment asset.

Keywords: Gold, real interest rates, bubbles

JEL Classification: G12, G13

Suggested Citation

Jermann, Urban J., Gold's Value as an Investment (September 30, 2021). Available at SSRN: or

Urban J. Jermann (Contact Author)

University of Pennsylvania - Finance Department ( email )

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National Bureau of Economic Research (NBER)

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