Strength in Critical Minerals Mining Could Benefit Gold

The global transition to alternative energy sources is feeding into early strength for critical minerals. Demand may rise over the coming years. This upside could also spill over into strength for gold.

Canada’s largest gold miner is anticipating that the need to fulfill demand for critical minerals will result in an increase in mining. As such, this could open the pathways for gold mining operations, particularly when it comes to increasing efficiency.

“Whatever the metal you’re mining, an increased appreciation of the timeline and the work that goes into permitting any mine benefits the whole industry,” said Alden Greenhouse, vice president of strategic development with Agnico Eagle Mines, in a CBC News report.

As Greenhouse mentioned in the report, one of the challenges is the timeline between opening a mine and starting production. That could take up to 10 years, which means more efficient ways to mine would benefit the whole mining industry.

Gold is also getting its catalyst from rising demand not only in the long term, but in the short term. That’s because macroeconomic headwinds are helping gold prices.

Trading Growth in the Gold Mining Industry

Despite this logistical challenge, the gold mining industry is benefitting from rising prices. Recession fears only help gold’s case as investors seek safe haven assets like precious metals amid interest rate hikes.

Gold has been touching record highs as of late, especially with the stability of the financial system in question with recent bank rescues. In the meantime, that scramble to safe havens is benefitting the Direxion Daily Gold Miners Bull 2X ETF (NUGT), which is up over 30% for the year with the help of its 200% exposure to 200% of the inverse (or opposite), of the performance of the NYSE Arca Gold Miners Index.

To achieve the inverse position, NUGT invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets. The index is a modified market capitalization-weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets and are involved primarily in the mining for gold and, to a lesser extent, silver.

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