Why is physical demand weakening as central bank gold buying accelerates?

  • World Gold Council data show that central banks bought a net 321 tonnes of gold in the third quarter, their fastest quarterly buying pace since 2024; purchases year to date totaled 675 tonnes, up 6% from the same period in 2025. Global gold ETFs added 211 tonnes in the third quarter, reversing second-quarter outflows.
  • High gold prices also restrained jewelry consumption: third-quarter gold jewelry demand fell 17% year over year to 313 tonnes, although spending rose slightly. Investment in bars and coins fell to a four-year low of 268 tonnes.
  • JPMorgan believes gold could fall further to $3600–3700 per ounce, but gold and gold mining shares are becoming more attractive ahead of 2027. Conditions for a turning point in its assessment include a shift from high energy prices and interest rates to a recessionary environment, or a renewed increase in risk appetite.

Why is the growing US copper project pipeline unlikely to close the near-term gap?

  • US annual mined copper output has fallen by about half over roughly 30 years and currently stands at 1 million–1.1 million tonnes. Policy support has expanded the project pipeline to approximately 1.3 million tonnes of annual capacity, but JPMorgan expects most of it to supply the market only after 2030.
  • Smelting is a key bottleneck: the two main US primary copper smelters have a combined nominal capacity of about 550 thousand tonnes, with roughly 130 thousand tonnes of capacity remaining after utilization increases. Excluding tariff-driven import disruptions, the bank expects the US refined copper shortfall still to be around 1 million tonnes at the end of the decade.
  • Expansion costs are also above global levels: average capital intensity for US projects is about $28 thousand per tonne of annual capacity, compared with $24 thousand–26 thousand globally. The Resolution project has a planned annual capacity of about 600 thousand tonnes, accounting for nearly half of the US project pipeline, but a final investment decision is considered unlikely before 2030. Initial capital expenditure is about $20 billion, and building a smelter could require more than another $5 billion.

What has changed in European energy and Brent crude?

  • The EU entered the 2026–2027 heating season with its lowest inventories since 2013, and temperatures in many parts of continental Europe are forecast to be 2–5 degrees Celsius below normal this week. Germany's fossil-fuel power generation is expected to rise to its highest level since February, and France has also restarted a coal-fired power plant for the first time in nearly a year.
  • Diplomatic news drove Brent crude to fluctuate between $101 and $107 per barrel in a single day, before it closed at $104.35, unchanged from the previous trading day. Positive news about a US-Iran agreement was subsequently denied by Iran.

How could the US midterm elections affect metals?

  • JPMorgan's foreign-exchange strategy team expects the US dollar could weaken by 1%–2% if Democrats win decisively; if Republicans perform unexpectedly well and retain the Senate, the dollar could strengthen modestly. The report says a weaker dollar is theoretically favorable for demand for metals and commodities, but the market is also watching for potential changes to AI regulation following a decisive Democratic victory.
  • Gold and copper have been highly correlated with risk appetite over the past two years, so the report says metals could also be dragged down if markets sell off. Historically, over the past 30 years, the materials sector has gained an average of 13% in the six months following US midterm elections; the energy sector's performance has been more mixed across different observation periods.

What constraints affect Australian mining positions and rare-earth projects?

  • Among the 55 Australian domestic funds tracked by JPMorgan, the average underweight in materials widened from 137 basis points in August to 169 basis points in September; the share of funds overweight materials fell from 54% to 50%, below the long-term average of 56%.
  • After visiting Iluka's Eneabba project, JPMorgan analysts gained greater confidence in its long-term asset quality. Construction was 65% complete at the end of September, and the target remains first feed in mid-2027; the subsequent two-year ramp-up and pipeline and electrical interfaces are the main risks.
  • The funding buffer is also limited: analysts estimate that only about A$32 million of headroom remains under the non-recourse loan in the intermediate scenario, after which the A$150 million cost-overrun facility may need to be drawn. A fuller heavy rare-earth opportunity also depends on final investment decisions for the Wimmera, Northern and VHM feedstock projects.