The macro theme last quarter was the market’s growing consensus on “higher for longer” US interest rates. High oil prices and rate hike expectations in H1 pushed Treasury yields up, but fiscal pressures also came to the fore: total US debt exceeded US$40 trillion, annual interest expenses hit US$1 trillion, and in late August the 30-year Treasury yield reached 5.32%, the highest since 2007. The Treasury then announced it would double the scale of its buybacks[1]. However, the Fed raised rates by 25bp at its September FOMC meeting and struck a hawkish tone, pushing the 30-year Treasury yield up further to 5.64% (30 September).
Two fundamental reasons underlie the formation of “higher for longer” interest rates. On the one hand, against a backdrop of deglobalization, resource nationalism, and strategic resource stockpiling, supply-side elasticity has weakened and the cost of capital has tended to rise. On the other hand, AI-driven investment has continued to expand regardless of high interest rates. It should be noted, however, that AI’s improvement in productivity remains insufficient to drive a sustained rise in real interest rates and a sustained reduction in inflation, and thereby to ease fiscal pressure. Consequently, market concerns about fiscal pressure are expected to persist.
Looking ahead to the fourth quarter, as the US midterm elections approach, oil prices, tariffs, and fiscal expansion plan will all be in the spotlight. Precious and base metals markets may face heightened macro-driven volatility.
Fig 1 | Commodities prices (indexed, price of Sep 30, 2025 = 100)
Source: LME, GFEX, Appian Capital Advisory
Gold
In the first half of 2026, rising oil prices and the nomination of Warsh drove up expectations of Fed rate hikes, triggering large outflows from gold ETFs and a decline in gold prices. In July, gold briefly fell to around US$4,000. In the third quarter, gold traded in a tug-of-war between “high interest rates” and “fiscal credit concerns”. In August, following the “Treasury’s announcement of doubling the scale of Treasury buybacks,” gold prices rebounded sharply and broke through US$4,500; in September, the Federal Reserve’s rate hike released a hawkish signal, and gold prices fell sharply again.
Beyond ETF fund flows driven by the interest rates, more structural support came from the official sector. According to the World Gold Council, global central banks continued the pace of gold purchase, and reported total purchases of 170t year-to-August. Among the buyers, the People’s Bank of China have increased its holdings for the 22nd consecutive month, adding 20t in August (the largest monthly increase since October 2023), raising gold’s share of foreign exchange reserves to 9%.
In the short term, interest rate expectations affect gold ETF flows and gold prices. In the medium to long term, amid geopolitical conflicts and US fiscal concerns, the medium- to long-term drivers of central banks’ “de-dollarization” and increased gold holdings remain unchanged. The medium- to long-term bearish factors for gold are AI-driven productivity gains and a sustained rise in the real interest rate on dollar-denominated assets.
Fig 2 | Gold ETF turned to inflows in Q3 from the significant outflow in June
Source: WGC, Appian Capital Advisory
Copper prices remained elevated through the third quarter despite macroeconomic volatility, supported by tightness on two fronts. First, inventories continued to flow into COMEX, tightening spot availability in other markets. Second, spot copper concentrate treatment charges (“TC”) fell deep into negative territory, below minus US$200/t, forcing loss-making Chinese smelters to trim production. China’s refined copper output fell 2.3% quarter-on-quarter in Q3, although cumulative output for the first three quarters was still up 3.7% year-on-year.
The flow of copper into COMEX dates back to February 2025, when the US launched a Section 232 national security investigation into copper imports ². The Department of Commerce submitted its assessment on 30 June 2026, giving the President 90 days to act, yet no executive order on refined copper tariffs has been issued. This suggests that whether tariffs are ultimately imposed now matters less than the market’s broader view that copper has become a strategic resource rather than purely an industrial metal, with stockpiling demand already priced in.
Fig 3 | Copper stocks on COMEX continued rising
Source: LME, SHFE, COMEX, Appian Capital Advisory
Zinc
Amid the short squeeze driven by tight zinc concentrate supply and low London Metals Exchange (“LME”) refined zinc inventories, LME zinc touched a multi-year high in the third quarter. From fundamental perspective, zinc concentrate TCs continued to decline and weighing on smelters’ profitability. On September 28, Nyrstar initiated a strategic review of its Budel smelter in the Netherlands 3, citing Budel’s continued exposure to high energy costs and historically low TCs. Meanwhile, a few Chinese zinc smelters began maintenance, causing China’s refined zinc output in the third quarter to fall 2.4% quarter-on-quarter, with cumulative output for the first three quarters down 0.3% year-on-year.
Inventory data shows a divergence between China and overseas markets: LME inventories fell below 90kt in August, while Shanghai Futures Exchange (“SHFE”) inventories remained at a high level (above 140kt). This divergence in fundamentals has widened the LME/SHFE spread and prompted China to shift from a refined zinc importer to an exporter. In August, China exported 40kt of refined zinc, the largest single-month export volume on record. At present, however, China’s zinc exports remain insufficient to reverse the overseas market balance, and higher Western smelting costs may continue to support zinc prices in an elevated range.
Fig 4 | China is shifting from a zinc importer to an exporter
Source: China Customs, NBS, Appian Capital Advisory
Nickel
Nickel prices fell 8% quarter-on-quarter in Q3, giving back the gains made since December 2025 as concerns over Indonesia’s mining quotas (“RKAB”) temporarily eased. In May 2026, PT Weda Bay Nickel suspended operations due to insufficient RKAB quota. After four months of maintenance, on September 10, Eramet announced that PT Weda Bay Nickel had received approval from the Indonesian authorities and had begun gradually restarting mining operations 4. Policy uncertainty and inconsistency in Indonesia have once again weakened market confidence.
Although mine-side constraints have eased for now, supply disruptions caused by other factors are still ongoing. For example, sulphuric acid prices remain high, and Indonesian high-pressure acid leach (“HPAL”) projects have cut production due to significant cost pressure; under the impact of El Niño, water supply at the Indonesia Morowali Industrial Park (“IMIP”) industrial park has been insufficient, leading to an nickel pig iron (“NPI”) production cut within the park; and amid weak nickel prices, the first three quarters’ cumulative refined nickel production declined 8% year-on-year in China (Mysteel).
However, these marginal supply disruptions have so far done little to lift sentiment, as elevated inventories continue to weigh on prices. Combined LME and SHFE nickel inventories remain close to 400kt, compared with 77kt in early 2024. Looking ahead, the key factors to watch are Indonesia’s 2027 RKAB quotas and its planned export regulations 5.
Fig 5 | Nickel stocks remained at high levels
Source: LME, SHFE, Appian Capital Advisory
Lithium
The average lithium carbonate price in the third quarter fell 16% quarter-on-quarter, bringing prices almost back to the level seen at the start of the year. The main reason is market concerns that end-use demand growth cannot keep pace with battery cell production growth, leading to a build-up of “hidden” inventory across the supply chain. In the first three quarters of this year, China’s lithium iron phosphate (“LFP”) output rose 84% year-on-year to nearly 1,750GWh; by application, energy storage cell output increased 96% year-on-year, reaching a cumulative 694GWh. However, grid-connected installations appear to have lagged this strong production growth. According to RealLithium, battery producers in its sample are also planning slower production growth in October than the strong pace seen in Q2 and Q3.
A further trigger came on September 7 when the Shanghai Metals Market (SMM) expanded its sample for lithium carbonate inventory statistics. The new methodology showed inventory increases at downstream cathode material plants, while upstream smelters and battery makers were destocking, prompting the market to reassess supply and demand dynamics and sparking concerns about hidden inventory.
Sources:
1. https://home.treasury.gov/news/press-releases/sb0607
2. https://www.whitehouse.gov/presidential-actions/2025/02/addressing-the-threat-to-nationalsecurity-from-imports-of-copper/
3. https://www.nyrstar.com/resource-center/press-releases/nyrstar-launches-strategic-business-review-of-budel-operations
4. https://www.eramet.com/en/news/pt-weda-bay-nickel-restarts-its-mining-operations/
5. https://www.mysteel.net/news/5131638-flash-indonesia-issues-new-ferronickel-export-control-regulation
