Gold and Climate Change

James Steel

By James Steel
Chief Precious Metals Analyst, HSBC Bank USA NA

Camila Sarmiento

By Camila Sarmiento
ESG and Climate Change Research Analyst, HSBC

Gold is a unique and versatile metal and the price of gold is the result of a myriad of factors. A key factor is often the wider perception of global risk − including economic, financial, political, and even social risks. The global threat posed by climate change can bring heightened market volatility and uncertainty, which can impact gold prices.

Climate change brings rising temperatures, and this increases the frequency and intensity of extreme weather events.

Geopolitical Risk Analysis Applies

Impacts are already being seen: the last nine years have been the hottest nine years ever recorded on Earth and this summer has seen a relentless stream of extreme weather, from hurricanes to wildfires to heat waves. Natural disasters – including Storm Freddy which hit Malawi and Mozambique in March, Cyclone Mocha in Myanmar and Pakistan in May, Canadian wildfires in June, and Maui’s wildfires in August of this year – have exposed the vulnerabilities of today’s critical infrastructure, and just how unprepared the world’s energy and transportation systems are to withstand the volatility of climate change. They also bring increased damage costs.

At the same time, jurisdictions across the world are committing to net zero alignment and this transition to low carbon economies could also have a destabilising effect on economies and societies. This could be brought about, for example, by an abrupt change in public policy not fully anticipated by market participants or by tipping points in disruptive new clean technologies. In the World Economic Forum’s Global Risk Report 2023, failure to mitigate climate change is now considered number one out of 32 risks facing the world in the longer term.

In our view, the potential impact on gold from climate change can be analysed and approached in much the same way as other geopolitical risks have impacted gold. The positive correlation of gold with geopolitical risk is supported by empirical studies, which show that gold exhibits a positive behaviour among commodities, including other precious metals, to such risks (Chart 1).

Geopolitical events have been influential in helping to direct gold prices in recent years, and historically, gold has been especially sensitive in cases of outright military conflict.

However, like other geopolitical impacts on gold, climate change impacts are hard to measure. Every geopolitical event is different and is therefore hard to quantify as to how it may – or may not – impact gold. While a 25bp hike by the Fed, or a percentage move in the USD or equity market decline can be analysed quantitatively as to its direct impact on gold prices, this is not the same with geopolitical events and, we would argue, climate change related events.

Gold also has a history of rallying independently of other commodities and gold’s current levels do not appear at all dependent on other commodities. This helps confirm gold’s status as having global ‘safe haven’ appeal. It is this ‘safe haven’ appeal, as well as gold’s proven track record as a hedge against escalating risks, that makes it attractive in times of heightened uncertainty. This is the crux of gold’s utility in times of escalating geopolitical risks, and more recently, climate risks.

Indeed, global economic contraction has a positive impact on the return volatility of gold and climate change can reduce economic growth.

The latest economic modelling shows that a 2.2 degrees Celsius temperature rise by 2050 could reduce global GDP by up to 20%, which would have profound consequences across countries.


Agricultural production

Crop yields and food resources are compromised by not only variable weather but also other climate related impacts including soil erosion, drought, and changing sea and saline levels. A report from the International Panel on Climate Change (IPCC) concluded that the industries of agriculture, forestry, fisheries, and aquaculture are already feeling climate impacts, such as lower crop yields, and that future climate change will bring pressure to food prices. Historically, rapidly escalating food prices have buoyed gold prices.

Economic dislocation

The economic impact of rising temperatures, air pollution, water scarcity and food security, sea levels, and extreme weather events created by climate change can reduce economic growth, burden governments with fiscal responses, and dislocate financial markets, all of which tend to be gold positive.

Inflation impact

Rising inflation as a result of economic dislocation may create difficulties for monetary authorities who may be reluctant to tighten monetary policies to combat rising prices. This may increase gold demand as an inflation hedge.


Climate change appears to have a disproportionately negative impact on less developed and highly indebted poor countries (HIPC). This can lead to high levels of irregular and illegal immigration from climatically challenged countries in the developing world to the developed world, with social and political consequences. The political and social distresses in both the home and host countries could raise global tensions and support gold demand.

International trade

International trade is vulnerable to climate change impacts. Research from Oxford University’s Environmental Change Institute (July 2023) finds more than USD81bn in international trade annually is at risk from the impact of extreme climate events.

Traditionally, gold prices have tended to rise during periods of contraction or disruption in world trade and fall during periods of above-normal trade growth. Should climate change noticeably weaken trade flows, gold could be an indirect beneficiary.

Financial market instability

The manifestation of severe weather events, according to the IMF Financial Stability Board’s report entitled The Implications of Climate Change for Financial Stability (2020), is likely to be negative for asset prices and may increase financial market uncertainty. This could have a destabilising effect on the financial system.

Disruptions could also occur on a national level as some economies, especially emerging markets, are more vulnerable to climate risks, all of which may promote gold demand.

However, we caution investors from attributing a single climate related event to a rise in gold prices, as this may be misleading. One of the findings in Gold and Geopolitical Risk by Dirk Bauer (2021), is that while the frequency of what is termed as “geopolitical events” is increasingly lending support to gold, after any particular event, gold prices tend to partially relax. The greater frequency of these events in recent years – rather than any one event – is what is supporting gold at prices that bullion might not otherwise reach. This may also be the case for climate risk events and gold also, as the frequency of climate impacts is rising rapidly.

As such, we believe it will be the increased frequency of climate events, not necessarily any particular climate event in and of itself, which will support aggregate gold demand and sustain bullion prices that, given other market dynamics, gold may not otherwise achieve.

Physical Climate Risks on Gold

The actual physical impacts on gold mining from climate change, including soil erosion, landslides, wildfires, earthquakes, and flooding, have the potential to disrupt some gold mining operations and supply. We believe the relationship between natural disasters and global warming risks and gold can be negative for mining operations.

However, gold’s diversity in mining locations, and high recycled supply, may make gold supply more stable when confronting physical climate risks as they relate to mining. This should help maintain production.

Is Wall Street ready? A Place for Gold?

Traditionally, economic instability shifts investments into safer assets, including gold. Due to elevated distress in the global economy arising from climate impacts, such as reduced growth, escalating domestic and international tensions, disruptions to agricultural production, mass migration, and financial market dislocation, demand by investors will likely rise for a ‘safe haven’ and quality hard asset, such as gold.

Additionally, gold has a potential role to play in reducing investor exposure to climate-related risks. There is growing acknowledgment and concern by institutional investors over portfolio exposure to climate risks. Financial institutions can have exposure to corporations, consumers, countries, or any other economic agent that experiences climate shocks. They can also be impacted indirectly via the effects of climate change on the wider economy and by negative feedback effects within the financial system. Equity markets are often not priced in to reflect climate risks, and managing this risk of a portfolio is challenging due to impact uncertainties, availability and relevance of historical data, and time horizons. According to a 2021 survey titled “What Do You Think About Climate Finance?”, of 861 academic economists, regulators, and financial market participants who were polled, 60% stated that they believe stock market prices do not sufficiently reflect climate-related risks. Indeed, one study finds only climate policy (actions and debates) were priced in US stocks, while not including natural disasters, global warming, and international summit risks. With these increased challenges that climate change present to a portfolio, gold could be one way to diversify and hedge climate risk.

The Carbon Footprint Gold

As the world aligns with a net zero goal, investors globally are seeking to ensure that they are aligning the funds they manage with net zero and other ESG goals.

What first comes to mind when we think of gold in the context of climate change is its mining and value chain emissions. If gold is to grow as a strategic asset in
the face of climate change risk, there is a clear need to better understand gold’s mining and value chain emissions, how they compare with other assets, and the investment implications.

Gold’s Heavy Carbon Footprint is not so Heavy

Gold mining falls under the extractive industry classification, an industry that is not only carbon-intensive, but as with other industrial sectors, can be counted as a ‘hard-to-abate’ sector in relation to its emissions. Compared to the emissions intensity per unit mass of other mined products (e.g. coal, aluminium and copper), gold has a prodigious carbon footprint. To put it in context, the World Gold Council estimates one ton of gold extraction emits 2,309 times more emissions than a ton of aluminium. Declining ore grades have driven increasing carbon emissions over time. That being said, the scarcity, value and circularity of gold makes its emissions story more positive:

Gold is scarce

Typically there is 1-6 grams of gold per ton of rock; this compares to 6kg of copper per ton of rock. Separating the gold from rock is responsible for most of the energy intensity of gold production. However, given the small quantity of gold produced, the total emission associated with gold mining is actually significantly smaller than metals like steel and aluminium.

Gold is valuable

Because gold is so valuable, the volume of greenhouse gas emissions associated with a dollar value of gold is lower than most other mined products, including copper and zinc.

Gold can be seen as a circular product

Demand for gold is supplied by both newly mined and recycled metal. Unlike many metals and natural resources, gold is not consumed over time; nearly all the gold ever mined still exists and is potentially available for re-use. Recycled gold makes up 25 to 30% of annual supply, and this has no material carbon footprint, according to the World Gold Council.

Net-zero Transition Pathways for the Gold Sector

The most carbon intensive part of gold’s supply chain is from fossil fuels used in electricity during production. While some mines are in more remote locations and therefore operate off-grid, grid power plays a significant role and therefore has a significant impact on gold mining emissions (c45% of emissions are estimated from electricity purchased). Emissions from diesel

or fuel consumption for on-site electricity generation and powering machines and vehicles is also a major contributor to gold’s carbon footprint. Emissions reduction can be achieved by the decarbonisation of:


Since the industry relies in large part on electricity purchased, the pace at which grids decarbonise will impact the emissions footprint of gold. Power generation is the ‘first frontier’ of decarbonisation for countries and sub-national jurisdictions. These efforts will benefit the gold industry’s emissions (Chart 4). At the same time, adding renewable energy and storage onsite can replace fossil fuel power generation and power electric-powered engines.


The development of battery or fuel-cell alternatives in the heavy-duty vehicle industry will be key. Technological maturity, infrastructure and cost bottlenecks bring challenges to their mainstream application, but increased momentum for electrification has been building among policymakers and manufacturers.

Material recycling

As gold can be continuously recycled with minimal emissions, increased material recycling and the circular economy could play a larger role in reducing emissions.

In our view, the industry is still in its initial stages of decarbonising. However, emission reduction targets are in place by many companies, and options to improve energy efficiency and implement renewable sources are available. Our HSBC model estimates a decline in emissions by two-thirds from non-ferrous metals, including gold, by 2050.

Portfolio Impacts of the Inclusion of Gold

As investors are increasingly looking to track their portfolios’ emissions, higher gold holdings would require greater scrutiny around the emissions of gold mining, among other ESG factors, in particular around production and supply chain operations. Understanding the carbon footprint of an investment in gold can prove challenging as gold mined in different regions has varying emissions intensities. Additionally, c30% of gold is recycled from above-ground stocks which produce minimal emissions for being recycled.

However, research suggests that despite emissions concerns, the carbon footprint of gold can reduce a portfolio’s total footprint. The World Gold Council (WGC) finds that holding gold in a diversified portfolio can help reduce its carbon footprint. Their analysis finds that emissions from a medium- to long-term investment in gold can be seen as less than emissions associated with a similar sized investment in the S&P 500 index. This assumes gold assets acquired are backed by newly mined gold, which may be unlikely given the significant role recycled gold plays in global supply.

In our view, assessing the climate impact of a gold investment within a portfolio is difficult due to the inconsistent emissions created across regions, mines, and source (mined vs recycled), and the lack of data available. The climate evaluation of a commodity is not mainstream (i.e., not the focus of disclosure regulations) and this brings challenges for commodity and multi-asset portfolio managers who wish to incorporate ESG considerations. For gold, ethical issues have, in the past, been more at the top of investors’ minds, and companies supplying gold have implemented certification standards to better track and report on gold with respect to social issues, while environmental considerations have been given less attention.

More recently, the World Gold Council’s Responsible Global Mining Principles are helping to push ESG data transparency across gold mining companies.

We think interest by investors in understanding those environmental, social and corporate governance implications of gold will help drive gold traceability, and better data and accountability around emissions and climate change impacts in gold supply chains.

James Steel

By James Steel
Chief Precious Metals Analyst, HSBC Bank USA NA

James Steel is HSBC’s Chief Precious Metals Analyst. He joined HSBC in May 2006. Previously Jim ran the New York research department for Refco, a large US commodities brokerage house, specializing in energy and metals. He also worked for The Economist in the Economist Intelligence Unit covering commodity producing nations and on the Middle East desk.

His primary duties at HSBC include the production of daily market reports, including long term outlooks for the precious metals markets. These include supply/demand and price forecasts, as well as qualitative analyses. He is a frequent speaker at commodities related conferences. He is often quoted in the financial media and frequently appears on Bloomberg and CNBC.

He is an economist by training and studied economics at undergraduate and graduate levels in London and New York.

Camila Sarmiento

By Camila Sarmiento
ESG and Climate Change Research Analyst, HSBC

Camila joined HSBC in July 2019, and is an ESG analyst based in New York. Her role involves analysis of climate change and ESG topics and their multi-asset implications. She previously worked with the equities team covering the LatAm infrastructure and transportation sectors. Camila holds a B.S. in Environmental and Sustainability Science with a concentration in Economics from Cornell University.