Geopolitical conflict is forcing the markets to think critically about critical minerals. More specifically, the importance of critical materials has shifted from industrial use to a vital component in national defense and energy security. In a recent Metals in Motion interview, Steve Schoffstall, director of ETF product management at Sprott Asset Management, discussed this dynamic.
Schoffstall indicated how how current geopolitical tensions are creating demand for materials like uranium, copper, and lithium. In turn, this creates opportunities in Sprott ETFs that can capitalize on this shift.
Key Takeaways
- Critical materials see a fundamental shift in demand as defense spending surpasses $2.6 trillion, benefiting metals used in drones, missile systems, and fighter jets.
- Gold’s recent price weakness is a temporary liquidity-driven dislocation, with long-term support expected from central banks looking to diversify their reserves.
- Consider the Sprott Critical Materials ETF (SETM), Sprott Uranium Miners ETF (URNM), and the Sprott Gold Miners ETF (SGDM) for potential exposure.
See More: As Oil Prices Struggle, Keep an Eye on Uranium
Defense and Energy Security Tailwinds
Historically, critical materials were mostly linked to the electric vehicle (EV) transition. However, that narrative is evolving. Schoffstall highlighted that global defense spending now exceeds $2.6 trillion. As such, critical minerals are increasingly essential for developing military technology.
“Things like rare earths, which are very much used in missile technology, drones, which we’re hearing a lot about, fighter jets, many defense systems and even lithium,” Schoffstall noted. “We’re hearing that some battery makers that were originally setting up operations for EVs are now looking to the defense industry.”
Schoffstall also noted that uranium is a prime example of energy security becoming a non-negotiable priority for governments amid geopolitical escalation. He specifically highlighted a major shift in European rhetoric as a potential catalyst for future demand.
“The President of the European Commission just said on March 10 that moving away from nuclear energy for Europe was a strategic error,” he said. “When you start to see this type of rhetoric, we expect to see policy follow.”
Given the aforementioned catalysts, consider funds like SETM and URNM. The former provides pure-play exposure to critical minerals while the latter does the same for uranium. Both offer exposure to companies poised for growth in their respective industries to meet this increased demand.
See More: Why Gold’s Liquidity Crunch Could Be a Buying Opportunity
Gold Mining Resilience
Despite short-term volatility in gold prices as of late, Schoffstall remained “incredibly bullish” on miners. Government incentives to build domestic supply chains and the fact that “a lot of these miners are much more profitable than they were 2 or 3 years ago” support this conviction.
Schoffstall also noted that gold’s recent sell-off is a byproduct of “short-term dislocation,” not the precious metal losing its safe-haven status. He explained that gold is often sold during crises as a means to fund liquidity, especially given gold’s rally the last couple of years.
“This isn’t new for gold,” Schoffstall said, citing similar patterns exhibited in 2008 and 2020. Once the need for cash stabilizes, he expects central banks to “return to the table and continue their buying as they look to diversify away from U.S. dollar-denominated assets.”
In this case, SGDM would give investors ideal exposure to the gold mining industry. The fund tracks the Solactive Gold Miners Custom Factors Index. That index provides exposure to large-cap gold companies listed on Canadian and major U.S. exchanges.
For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Channel.
Originally published on ETF Trends
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Exchange Traded Funds (ETFs): SETM, LITP, URNM, URN, COPP, COPJ, NIKL, SGDM, SGDJ, SLVR, GBUG, METL
Physical Bullion Funds:PHYS, PSLV, CEF, and SPPP.
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