This article first appeared in the Australian Financial Review on 2 November 2025
There’s no denying that resources have been out of favour for a few years now, as we’ve watched the financial sector storm ahead. But to investors, I’d say now is the time to get out your pencils and rulers to re-examine the sector, as sentiment and opportunity start to change.
Resources have suffered, largely due to the sector’s fortunes being closely linked to the Chinese economy. In a period of pessimism about Chinese growth, investors stayed away.
But in recent months, momentum has begun to turn. Commodities that had languished, from lithium to copper, are showing some welcome strength, and the market’s attention is starting to follow.
The turning point began with gold. As an asset that doesn’t generate income, gold typically does very well when interest rates come down and the cost of holding it falls. It also benefits in times of global uncertainty as investors prefer tangible stores of value.
The queues outside bullion dealers in Australian cities tell their own story. While the frenzy around gold might suggest speculative heat – and yes, there has been some choppy price action recently – the fundamentals
remain solid for the near term.
But it’s not just gold that has been performing well in the current cycle. Rare earths have surged, supported by growing recognition of their strategic importance to modern economies.
With China controlling a very substantial portion of the market, recent US-China trade tensions have exposed western vulnerability and accelerated demand for alternative sources. Australia’s new cooperation agreements with the United States on critical minerals have further highlighted the country’s position as a reliable supplier. Not only does this renew the resource’s appeal, it is likely to boost prices.
“Sentiment toward China has shifted from concern to cautious optimism. That can be good enough for commodities.”
Lithium is also back in focus after a period of price correction. Supply has been constrained as higher-cost producers have shut down, all while electric-vehicle adoption has continued to build momentum and new models have become more affordable with improved battery technology.
Similarly, copper has strengthened as global supply tightens. New deposits are harder to find, and production increasingly requires more complex, deeper operations, and demand for industrial and electrical infrastructure remains robust.
Even iron ore, Australia’s most significant export commodity, has held up well, defying expectations of a longer-term decline. Prices around $US100 a tonne suggest stability rather than weakness, giving a solid earnings base for major producers.
And yet, resources remain one of the cheapest sectors in the Australian market. After years of depressed valuations, even as other parts of the market have rallied hard. That creates real space for a re-rating.
If, as we expect them to, earnings upgrades begin to flow through from improving commodity prices, investors could see the double benefit of both higher profits and expanding valuations.
Importantly, the fundamentals are broad-based. Gold, rare earths, lithium, copper and iron ore are all examples that show signs of improving supply-demand dynamics. Together, they create a diversified platform for sector growth.
Of course China’s economy still matters, particularly for industrial commodities such as copper and iron ore. But sentiment toward China has shifted from concern to cautious optimism. That can be good enough for commodities.
As Chinese activity stabilises and the US economy shows signs of fatigue, global investors have begun to look beyond American exceptionalism to opportunities elsewhere. That includes Australia, where a rebalancing of sentiment could bode well for the resources sector.
In my view, resources have moved from being a contrarian idea to a mainstream opportunity.
For investors, there will be a first mover advantage. It’s time to re-examine the sector with fresh eyes and see the opportunities that have quietly been building.
