Rare Opportunity in Rare Earth Minerals?

What’s the forecast for rare metals, but not the precious ones?

Today is a market holiday in the U.S. (Martin Luther King Day), and while we’re normally not posting anything on those days, I thought that my subscribers would appreciate an early update from me, and I also took this chance to fulfill two requests that I just got. And I’m going to share one of them in this free article.

One request was about adding HZD.TO’s targets for my roadmap for GDXJ are to make it more useful for those, who are located in Canada and need to / prefer to use Canadian instruments. This is the part of the analysis that I’ll keep to my premium subscribers (I do, however, want to emphasize that it’s extremely easy to become one, as we’re currently offering a free 10-day trial for Gold Trading Alerts and our other alerts for our new readers) and I’ll also keep the coverage of the Friday’s session in the “premium zone”.

The second request – and the one that I’m going to share with you below – was about the rare earth minerals market – to provide info regarding its outlook and to provide a name of an ETF that one might use if they are considering investing in this sector.

Rare earth minerals, rare earth elements, or simply put “rare earths” are minerals that are crucial in many industries, and they include little-known commodities like dysprosium, neodymium, and praseodymium. For instance, they are used in high-tech devices, advanced weaponry, electric vehicles and high-tech in general. There are also quite many controversies surrounding this industry with regard to how it really impacts the world.

As the world advances technologically, the demand for those minerals should increase – in the long run (years) that is, as the medium term (months) and short term (weeks) will be influenced by overall economic situation in the world, and investors emotional swings.

Remember, just because something appears to be a great buy, it doesn’t mean that it’s a great buy NOW. Remember when everyone and their brother rushed to buy silver in 2021 because it was “inevitable” that the silver market would explode “now”. I wrote that the reasoning makes sense, and that the long-term potential for silver is enormous, but that the timing was terrible as silver would be likely to soar when the entire precious metals sector was strong – in the final parts of a bull market (just like in the late 70s and in 1980); not when gold stocks are still extremely weak relative to gold, indicating that the next ENORMOUS upswing in the precious metals market is still ahead, and not here yet.

The rare earths market is not huge (hence the name), and there are not many ETFs that focus on them.

The flagship one is REMX – VanEck Vectors Rare Earth / Strategic Metals ETF.

Another one is PICK – iShares MSCI Global Metals & Mining Producers ETF.

There’s also CRIT – Optica Rare Earths & Critical Materials ETF.

The CRIT ETF hasn’t been around for a long time, and you can see that its volume is not high and the depth of the market isn’t big either.

 Rare Opportunity in Rare Earth Minerals? - Image 1

It hasn’t been performing particularly well recently, but there’s very little data to support that particular ETF simply because it hasn’t been around for a long time. Consequently, it wouldn’t be my top pick if I was choosing a rare earths ETF (and I’m not choosing it, but I’ll move to that a bit later).

The REMX ETF provides good depth of the market, and good volume. Trades can be executed without moving the price in a meaningful manner (unless one is investing millions in a single trade that is).

 Rare Opportunity in Rare Earth Minerals? - Image 2

REMX shows something very interesting about the rare earths market. Namely, it’s been moving very much in tune with copper – the flagship industrial metal.

Based on the recent decade, there was no important advantage of being invested in rare earths instead of simply being invested in copper. Now, I’m not saying that rare earths don’t have their specific fundamental case. They do, but when it comes to market performance, they are subject to similar concerns about the global demand as copper. I compared both of them with the performance of the general stock market, which benefits from the economic activity and growth in demand directly.

It turned out that stocks were a much better choice in the previous years than industrial commodities, like copper or rare earths.

So, do rare earths offer a unique opportunity over copper? They might, if something happens that will affect this market but not the copper market, but the charts don’t show indications of that.

In fact, the REMX ETF is weaker than copper and that’s been the case in particular in the last several months.

The PICK ETF is a bit different than REMX as the latter focuses on miners and processors or rare earth metals, whereas the former is not solely (!) focused on rare earths; it provides a broader exposure to miners and metals.

 Rare Opportunity in Rare Earth Minerals? - Image 3

PICK’s performance was actually better than the one of copper in the recent years, while both remain underperformers of the S&P 500.

Now, since PICK includes not only rare earth mineral producers and processors, it seems that it could be the “rare earths” component that is making REMX underperform copper and other metals.

In other words, at this time market’s performance doesn’t support the theory of there being a massive opportunity in rare earths. There might be one, but it seems that for now, this sector is still declining, and the final bottom is not yet in.

This is in perfect tune with my current outlook for the copper market. I already wrote about it on Friday, so just a quick reminder.

 Rare Opportunity in Rare Earth Minerals? - Image 4

Copper price is after a breakdown below its rising neckline of the medium-term head and shoulders formation. Since the breakdown was verified, the outlook is clearly bearish. The initial downside target is based on the size of the head of the pattern, which in this case means a move below the 3.0 level.

The situation in copper is one of the reasons due to which precious metals sector is likely to fall in the following months, but as you saw earlier today, copper is also connected with rare earths, so the above has also bearish implications for the latter market as far as the next several months are concerned.

I do expect commodities to move higher in prices in the long run (years), but I don’t think that the next several months will be favorable. I think the opposite is much more likely – also given the likely strength in the USD Index.

Thank you for reading the part about rare earths. The full analysis also covers the roadmap for the GDXJ and HGD.TO, and I’m discussing the current situation in miners and in gold, with the emphasis on the indications from Friday’s session.

The situation in junior mining stocks currently offers an exceptional risk to reward opportunity in my view - I invite you to take the 10-day free trial of my Gold Trading Alerts and take advantage of it before it’s too late.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief