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Climate risk and gold

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  • Salisu, Afees A.
  • Olaniran, Abeeb
  • Lasisi, Lukman

Abstract

In this paper, we examine the predictive content of both transition and physical risks for the volatility of gold return as well as the utility gains of observing these risks. Our results offer the following distinct contributions to the literature. One, we show that the return volatility of gold has a positively significant relationship with transition risk and a negatively significant relationship with physical risk. Given some salient features of gold, its safe-haven property, and its rarity in nature, our result appears very plausible. Two, we find evidence for out-of-sample predictability between the return volatility of gold and both transition and physical risks although with greater predictive prowess from the former. Lastly, we confirm that accounting for both transition and physical risks guarantees higher economic gains for a utility-maximizing investor that observes these risks in the gold market. We further demonstrate the robustness of our findings to multiple forecast horizons and alternative commodities.

Suggested Citation

  • Salisu, Afees A. & Olaniran, Abeeb & Lasisi, Lukman, 2023. "Climate risk and gold," Resources Policy, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:jrpoli:v:82:y:2023:i:c:s0301420723002027
    DOI: 10.1016/j.resourpol.2023.103494
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    Cited by:

    1. Pham, Linh & Kamal, Javed Bin, 2024. "Blessings or curse: How do media climate change concerns affect commodity tail risk spillovers?," Journal of Commodity Markets, Elsevier, vol. 34(C).
    2. Xiang, Diling & Ghaemi Asl, Mahdi & Nasr Isfahani, Mohammad & Vasa, László, 2024. "Would really long-only climate-transition strategies in commodities bring lower market risk for sustainable markets in the long run? The Islamic sustainable market versus the global sustainability lea," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1271-1295.
    3. Zhu, Xuehong & Zhang, Shishi & Ding, Qian, 2024. "Does extreme climate change drive the connectedness among global gold markets? Evidence from TVP-VAR and causality-in-quantiles techniques," Resources Policy, Elsevier, vol. 91(C).
    4. Liu, Sijie & Geng, Yong & Gao, Ziyan & Li, Jinze & Xiao, Shijiang, 2023. "Uncovering the key features of gold flows and stocks in China," Resources Policy, Elsevier, vol. 82(C).
    5. Raza, Syed Ali & Khan, Komal Akram, 2024. "Climate policy uncertainty and its relationship with precious metals price volatility: Comparative analysis pre and during COVID-19," Resources Policy, Elsevier, vol. 88(C).

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