Material Matters: Gold, Copper, Mining Picks

Commodities | 2:03 PM

Short and longer term views on the gold price; copper’s outlook if the Strait is reopened, Macquarie’s methodology update and top mining stock picks.

• Various factors have weighed on gold, but value still evident
• Copper to benefit if Strait is actually re-opened
• Macquarie moves to a different commodity pricing methodology
• Updated stock preferences

By Greg Peel

The US and Iran have reached a “deal”, we’re told, based on a memorandum of understanding to be signed on Friday, which extends the to-date tenuous ceasefire by 60 days as negotiations refine the details into, presumably, an actual deal rather than just an MOU.

Thereafter, nuclear talks will begin.

For the world, the critical element is that the Strait of Hormuz will be opened, after the “deal” is signed this week.

It was open before the war.

The details of the MOU are yet to be released. They will “soon”, says Trump. Why the delay?

Financial markets have reacted positively, with oil prices down and stock indices up, but already the initial excitement appears to be fading.

To believe that the weekend’s “deal” signals a definitive end to conflict in the Middle East would be folly.

The following commodity analyst opinions were offered before the deal announcement (with one exception).

Bullion

The gold price is now down more than -20% since the conflict started in late February, but given the price surge beforehand, bullion only down -3% year to date.

While gold normally benefits from elevated geopolitical risk, it has come under pressure during this crisis, ANZ Bank analysts note.

This raises a question around why it is drawing so little support from heightened uncertainty. In ANZ’s view, the cause is the influence of other asset classes.

The US ten-year Treasury yield is hovering around 4.5%, increasing the opportunity cost of non-yielding gold, particularly with prices still around 27% above year-ago levels.

At the same time, equities continue to benefit from AI-driven optimism, drawing funds away from haven assets, while a stronger US dollar is raising the cost of gold for non-USD investors.

Rising concerns around inflation are weighing on gold, ANZ notes, as the growth outlook has not weakened enough to trigger haven demand. The current inflation-growth mix gives the US Federal Reserve little reason to shift toward a more supportive policy stance, especially when inflation risks remain elevated due to the Middle East conflict.

Despite what the US President insists, inflation will not come crashing down in a hurry even if the war is over.

Recent US data point to a resilient economy, with firmer labour market conditions and the manufacturing Purchasing Managers Index (PMI) still in expansionary territory.

At the same time, the supply-driven rally in energy prices and rising AI-related investment are adding to inflation concerns, pushing the latest US inflation print to 4.2% and leaving markets pricing in over 25 basis points of Fed rate hikes by year end.

However, weak US consumer sentiment, affordability constraints, falling real wages and a near-record low personal savings rate suggest businesses have limited scope to pass higher input costs on to consumers. ANZ therefore thinks underlying inflation is contained and that the Fed will eventually turn more dovish.

ANZ’s base case is for a rate cut in December, then one more each in March and June 2027. This should reverse part of the recent rise in yields. If the Middle East conflict eases and energy prices fall, investors may return to gold.

Increasing AI-driven optimism in equity markets and an emerging wave of IPOs (including SpaceX, Anthropic, OpenAI) are likely to keep risk-on sentiment intact in the short term. This may divert some flows away from defensive assets such as gold, ANZ suggests, but it also raises the risk of a sharper rotation back into gold if equity volatility rises.

Many private companies are preparing for listing in 2026 and ANZ compares this with previous booms in IPOs in 2021 and 1999. The stock market peaked after those two strong IPO cycles, with the S&P falling nearly -25% in 2022.

This year, the rally in IPOs will be led by large-scale listings and AI-related stocks that are estimated to rise to US$250bn. AI optimism is increasing concentration risks. This leaves the market exposed to any shift in AI sentiment.

While the current backdrop is different from previous IPO cycles, volatility could emerge as capital is redistributed, ANZ warns. This will likely encourage investors to diversify risk back into gold.

While gold-backed financial investment (ETFs, futures) has seen outflows, physical investment in gold is gaining support from rising institutional interest in neutral reserve assets. ANZ notes growing gold purchases by corporations point to a shift in reserve management, with gold increasingly used as a strategic hedge alongside US Treasury holdings.

The scale of at least one corporation’s purchases last year exceeded that of any central bank, reinforcing the view that gold is becoming a balance-sheet anchor rather than a tactical allocation.

Central banks turned net buyers in April, with China accelerating purchases to 8t, the highest since December 2024, extending its buying run to 18 consecutive months. Lower gold prices will likely encourage the PBoC to increase its stockpiling, ANZ predicts.

New buyers are also building gold reserves to diversify portfolios. ANZ expects official buying to remain in the 900–950t range in 2026.

ANZ’s conclusion is that structural support from geopolitical uncertainty, rising debt, and prospects for Fed rate cuts later this year should continue to underpin the investment case for gold.

T. Rowe Price believes the near-term backdrop for gold is less supportive than it was earlier in the rally. While the long-term case remains compelling, the balance of risks has become more evenly matched, T. Rowe believes, supporting a more neutral tactical stance.

T. Rowe points to similar factors as ANZ –-AI investment, higher US bond yields-– as weighing on gold.

T. Rowe also notes capital has flowed toward AI beneficiaries and industrial commodities linked to those themes, such as copper, where demand is being supported by tangible investment in power, grid, and data centre infrastructure.

T. Rowe agrees conventional thinking suggests rising geopolitical tensions should support gold. However, tensions in the Middle East have also pushed oil prices higher.

Higher energy prices have reinforced inflation concerns, supported the US dollar, and contributed to expectations that interest rates could remain higher for longer. These factors tend to be headwinds for gold.

T. Rowe further agrees central banks have been an important source of gold demand, but points out during periods of heightened geopolitical uncertainty, gold may also be sold or mobilised when countries face funding, currency, or balance-of-payments pressures.

This suggests central bank demand may be less consistently supportive than it has been in recent years, at least until conflicts in the Middle East ease.

T. Rowe continues to believe gold deserves a place in diversified portfolios, but its role is different from that of bonds or cash. Cash and high-quality bonds now offer something largely absent for much of the post-financial-crisis period: positive real yields.

That makes them increasingly attractive defensive assets in their own right.

Gold’s value lies elsewhere. T. Rowe believes it provides diversification against inflation surprises, fiscal deterioration, reserve currency uncertainty, and broader confidence shocks.

These risks remain relevant, which is why the analysts continue to favour maintaining a strategic allocation, even as they adopt a more neutral tactical stance in the near term.

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