Does the Gold Market Reveal Real Interest Rates?

The current practice of central banks lending gold to gold producers allows the gold leasing rate to be derived from published data. Gold leasing rates, a potential measure of real world interest rates, are calculated and compared with real interest rates derived from U.K. index-linked gilts. The authors then test for Granger causality between changes in the gap between U.K. and world interest rates and changes in the SDR/Sterling exchange rate. They find evidence of Granger causality in both directions, which is consistent with economic theory. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester