Does the gold market reveal real interest rates? 1994
This (1994) paper gives an arbitrage argument for gold lease rates being a proxy for real interest rates. This is argued as follows:
A mine is indifferent between these two alternatives at t=0:
1) Extracting gold now and selling it in the spot market. These funds are then used to buy a risk free bond.
2) Leasing gold now, selling it and investing the proceeds in a risk free bond.
In the future there can be two outcomes at t=1:
1) The return on extracting the gold at t=0 is the real risk free rate of interest.
2) Selling the bond at t=1 and using the proceeds to extract gold to return to the leaser of the gold. If the extraction costs rise at the rate of inflation then the return from this strategy should also be the real rate of interest.
So that lease rates reveal real interest rates. One point against this idea is that we do not know whether extraction costs rise at the rate of inflation.
Full Citation: Levin, Eric, Abhay Abhyankar, and Dipak Ghosh. “Does the gold market reveal real interest rates?.” The Manchester School 62.S1 (1994): 93-103.