Copper outperforms gold as AI and defense demand surge

Copper has risen 15.8% year-to-date, significantly outperforming gold futures, which have declined 4.11% over the same period. The industrial metal is also up more than 30% over the past 12 months, while gold futures are down 4.52% over that timeframe. Spot gold prices are 4.89% lower over the past 12 months and 4% down year-to-date. This divergence highlights a shift in investor focus toward metals critical for technology and national security infrastructure.

Ivanhoe Electric CEO Taylor Melvin stated that governments, regions, and industries are increasingly prioritizing access to metals for national security, economic growth, and technology infrastructure. Melvin noted that this strategic reclassification of copper from a critical to a strategic metal has supported price levels. His company, based in Arizona, focuses on mining and exploring copper, gold, silver, nickel, and cobalt. Melvin spoke at LME Week, the annual global metals industry gathering that began in London on Monday.

Investors are questioning the sustainability of artificial intelligence spending and hyperscaler build-outs, which has recently caused volatility in tech stocks. However, Melvin expects copper to withstand this volatility due to inelastic demand from the technology sector. He argued that large-scale technology companies are unlikely to base investment decisions on hyperscale data centers solely on the cost of copper. This inelasticity also applies to emerging demand from national security and defense budgets.

Melvin acknowledged a recent retreat in tech equity valuations but maintained that these industries are growing and will provide incremental demand for copper. He stated that capital market sentiment on equity values can move independently of the underlying industrial growth driving metal consumption.

Uncertainty over potential U.S. tariffs has also supported the rally. The U.S. Commerce Department recommended a 15% tariff on refined copper beginning January 1, 2027, though no final decision on the proposed levy has been publicly announced. Iain Pyle, senior investment director at Aberdeen Investments and co-manager of the abrdn Future Minerals Fund, said that the potential for U.S. tariffs has led to a large share of the world's copper being stored in the U.S. He noted that it is unclear if these stocks will be available to the rest of the market.

Pyle added that Chinese inventories appear exceptionally low while premiums in China are rising. In a note dated October 15, Pyle described copper as the clearest example of a market where supply cannot keep up with demand. He stated that higher incentives in the form of sustained higher copper prices would be needed. Pyle acknowledged some risk of a pullback around tariff announcements but viewed the underlying fundamentals as clearly bullish, noting that the potential for a price spike has increased.