Copper Outperforms Gold as Strategic Demand from AI, Power Grids and Defense Bolsters Rally

Market Analysis

Copper has emerged as one of the years strongest-performing commodities, rallying 15.8% year-to-date and rising more than 30% over the past 12 months. Investors and industry executives say the metals strength reflects a deepening shift: governments and corporations are treating formerly critical metals as strategic assets as artificial intelligence, power-grid upgrades and defense spending drive new, durable demand.

By contrast, gold has lagged. Gold futures are down about 4.11% year-to-date and spot gold is roughly 4% lower this year and 4.89% down over the past 12 months. That divergence underscores how industrial demand for copperrather than safe-haven buyinghas become the dominant market narrative.

Ivanhoe Electric CEO Taylor Melvin, speaking on CNBCs Squawk Box Europe as LME Week opened in London, argued that coppers new demand pockets make consumption relatively inelastic. Large-scale technology projects such as hyperscale data centers are unlikely to cancel or delay builds because of coppers price. Melvin also pointed to national security and defense budgets as emerging, similarly inelastic sources of incremental copper demand.

"Its a new pocket of demand, and it really is almost an inelastic demand for copper," Melvin said. "That same inelasticity applies to another demand pocket thats emerging, which is national security, national defense budgets."

Melvins comments reflect broader investor sentiment that the metal has moved beyond cyclical industrial demand to a structural story tied to technology infrastructure and geopolitics. He added that although tech-sector equity valuations have softened recently, the underlying industrial demand from those same companies continues to grow and will contribute to copper consumption.

Drivers and Risks

Investors point to several factors reinforcing bullish copper fundamentals. One is uncertainty around a potential U.S. tariff on refined copper. In 2025 the U.S. Commerce Department recommended a 15% tariff, proposed to begin Jan. 1, 2027, but no final decision has been announced. That prospect has encouraged stockpiling in the U.S., reducing the amount of copper available to global markets and tightening physical availability.

Iain Pyle, senior investment director at Aberdeen Investments and co-manager of the abrdn Future Minerals Fund, said the combination of U.S. tariff risk and exceptionally low Chinese inventories is creating upward pressure on copper premiums and prices. In an Oct. 15 note, Pyle described copper as the "clearest example" of a market where supply cannot keep up with demand and argued sustained higher prices will be needed to incentivize additional supply.

Pyle acknowledged the risk of a price pullback around tariff announcements, but said the underlying fundamentals remain bullish and increase the chance of price spikes if supply disruptions or policy actions materialize.

For investors, that mix of structural demand from AI and defense, tight inventoriesparticularly in Chinaand policy uncertainty in the U.S. combine to support the view that coppers rally can survive episodic corrections tied to tech-sector sentiment.

Conclusion

Coppers strong performance this year reflects more than a cyclical rebound: it is increasingly being priced as a strategic input for next-generation infrastructure and national security. While macro and policy risks (including potential tariffs) could trigger short-term volatility, industry executives and portfolio managers argue the metals expanding, relatively inelastic demand base gives the market resilience and the potential for further upside if supply remains constrained.