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The True Cost of Abandoning the Gold Standard

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Gold and Silver Volatility at Decade Lows

Gold and Silver Volatility at Decade Lows

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Gold's Potential as a Safe Haven in a Warming World

  • Climate change and extreme weather events may impact gold's value.
  • Gold's carbon profile and decarbonization potential may enhance its role as a safe haven asset.
  • Price volatility in the gold market is closely tied to how leaders and public discourse respond to climate events.
gold

Via SchiffGold.com,

Certain climate scientists, research economists, and precious metal investors agree: This year could be one of the hottest on record.

Climate change has long been a popular theme among left-wing media outlets, and this transitional El Nino-La Nina season has provided plenty of fuel for the fire. 2024 stands a fighting chance of seeing the highest temperatures ever recorded, climate researcher Zeke Hausfather told CNN, beating out a blazing 2023. The earliest Cat. 5 hurricane recorded in the Atlantic has already shattered the Caribbean islands, striking during carnival season and leaving a wake of “apocalyptic scenes,” according to The Guardian’s Caribbean reporter.

Here’s the real surprise: Fluctuating temperatures and ferocious summer storms may be valuable economic indicators in the gold market.

In times of uncertainty, investors flock to all that glitters, driving supply down and boosting price—especially when that uncertainty turns political.

“Gold’s carbon profile and decarbonization potential may reinforce or amplify gold’s role as a safe haven asset, risk hedge and store of value during periods of market stress,” according to the World Gold Council. 

“This lends further credence to our analysis suggesting that gold’s long-term returns may be more robust than those of many mainstream asset classes in the context of a range of climate scenarios.”

It’s not just weather that has investors pricking up their ears. In fact, price volatility is far more closely linked to how global leaders and public discourse respond to climate events.

A 2023 study found a strong correlation between return volatility and two types of climate change risk: transitional (i.e., the political and social move toward green energy) and physical (actual devastation caused by climate events). Researchers found that gold prices fluctuate more in the face of green energy policy, and less under severe weather conditions that aren’t widely discussed.

That’s likely because no one knows exactly what to believe. Despite alarmist media reports, life so far remains largely uninterrupted by climate change. But if politicians really believe we’re heading for “submerged countries, abandoned cities, fields that no longer grow”—to quote former President Barack Obama—they must also believe they’re doing humanity a favor by burning up paper money in a slow-fire of inflationary “green” policy. In politics, not climate itself, lies the real uncertainty that drives investors to make sharp, aggressive moves in the market.

From the White House this week on its nearly apocalyptic green energy concerns:

 “President Biden is delivering on the most ambitious climate agenda in American history—an agenda that is lowering energy costs for hardworking families, bolstering America’s energy security, creating thousands of good-paying jobs, and strengthening community-driven climate resilience across the country.”

What Biden had to say about this mountain of new legislation: 

“It’s going to be significant … We’re going to face a tough summer, but we’ve taken significant steps to ameliorate the concerns.”

Significant handouts = significant inflation = significant need for a stable store of value.

Particularly during an election year, legislation presents a major “transition risk,” and that’s where gold comes in.

A second reason for gold’s price fluctuations when harsh weather hits the news and policy stage is its role in decarbonization, the process of reducing potentially climate-altering emissions from industrial manufacturing.

Mining is notoriously emissions-heavy, but as the World Gold Council points out, there’s potential to develop eco-friendly methods that could be especially pertinent to gold.

“It is credible that gold mining might reach net-zero by 2050,” report authors wrote.

“The opportunity for sectoral decarbonization [in gold mining] is clear, concentrated and, compare[d] to many sectors, relatively simple and accessible.”

With gold becoming an increasingly “clean” metal, also playing a significant role in “green” tech, demand for the metal will surely rise during the clean-energy transition, driving prices skyward.

Then, finally, there’s the worst-case scenario.

Suppose resources do become scarce. In an economy where governments and citizens alike are scrabbling for a healthy food and water supply, basic industrial metals, and functional transportation, paper money will be the last “store of value” on anyone’s mind—except for stoking fires. Gold stands a better chance of survival should global tensions escalate, whether the cause is climate, pandemics, or war.

The 2023 study suggests that during times of real physical risk attributable to climate change, gold prices tend to hold steady. That’s a sign to watch out for—and an economy to invest in early.

Come rain or shine, climate policy decisions and public discourse will significantly shape precious metal prices, as green energy agendas surge ahead and receive ever larger media coverage.

“We note that an increase in climate risk has no definitive effect on the economy until the component of climate risk being considered [i.e., discussed in political circles] is factored in,” according to the 2023 study authors.

“An increase in news coverage of the physical risk factors [for example] will create a societal concern which can impact investor sentiments and consequently the entire economy.”

By Zerohedge.com

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