Does climate risk matter for gold price volatility?

Abstract

This study utilizes predictive modelling and STL decomposition to revisit the potential driving effect of climate risk on gold price volatility and observes the utility benefits of this risk. We find that gold price volatility is negatively correlated with physical risk (El Niño). Moreover, the parameter estimation results provide evidence for the heterogeneous influence of SOI on gold price volatility. Moreover, we find evidence for the presence of the physical risk of climate change on the prediction of gold price volatility, where the extended model incorporating the seasonal component of SOI has a better prediction.