ADF Group's Order Backlog Surge: A Golden Opportunity for Leveraged Gold Exposure

The recent surge in ADF Group (DRX:CN) shares—up nearly 30% year-to-date—has caught the attention of investors seeking exposure to the broader gold sector. While the company's primary business revolves around steel fabrication for infrastructure projects, its robust order backlog and margin improvements offer a compelling leading indicator of rising demand for gold-related investments. This article explores how ADF's performance signals a strategic inflection point for the gold sector and highlights two instruments—PowerShares DGP ETN (DGP) and Newmont Mining (NEM)—to capitalize on the rally.

ADF Group: Infrastructure Strength as a Gold Sector Proxy

ADF's Q2 2025 results revealed a $402.3 million order backlog, down slightly from prior quarters but still historically strong. While delays in U.S. green energy projects—linked to election-related policy uncertainty—temporarily impacted revenue, management emphasized the backlog's resilience. This suggests sustained demand for infrastructure projects, many of which are tied to energy and mining sectors.

The key insight here is that infrastructure spending for energy projects (including those funded by gold miners) often precedes the physical extraction and processing of gold. For example, Mali's gold sector—where geopolitical risks persist—relies on robust infrastructure to support mining operations. ADF's backlog, while not explicitly gold-linked, reflects the broader economic activity underpinning gold production and demand.

The Gold Demand Connection: Geopolitics and Inflation

Gold demand is surging on twin tailwinds: geopolitical instability (e.g., Russia's influence in Mali) and elevated inflation. Central banks added 700+ tons of gold to reserves in 2024, while ETF inflows hit multiyear highs. ADF's order backlog growth mirrors this trend, as gold miners invest in infrastructure to meet rising output targets.

Why This Matters for Investors:
1. Leverage to Gold Prices: Infrastructure demand for mining projects is a lagging indicator of gold prices—miners invest in capacity only when prices justify it. ADF's backlog suggests miners are betting on sustained gold strength.
2. Margin Resilience: ADF's gross margins hit 36.9% in Q2 2025, up from 22.2% in 2023, driven by automation and cost discipline. This signals operational efficiency, a trait critical for companies exposed to commodity cycles.

Strategic Gold Plays: DGP ETN and Newmont Mining

1. PowerShares DGP ETN (DGP): A 2x Leveraged Bet

The DGP ETN provides 2x daily leveraged exposure to the price of gold, making it ideal for aggressive investors expecting a sharp rally. With gold hovering near $2,200/oz, DGP's leveraged structure offers outsized gains if prices breach $2,500.

Why Now?
- Inflation Risks: Core PCE inflation remains above 3.5%, and Fed rate cuts are unlikely until 2026. Gold typically thrives in high-inflation environments.
- Central Bank Buying: Emerging markets, particularly in Asia, continue to diversify reserves into gold.

2. Newmont Mining (NEM): Undervalued Gold Giant

Newmont's shares trade at a P/E of 12x, below its five-year average of 15x, despite record output and rising gold prices. NEM's valuation discounts risks like cost inflation and political instability in key mining jurisdictions.

Technical Catalysts:
- A breakout above $65/share would signal a resumption of its 2023 uptrend.
- NEM's dividend yield of 1.8% offers downside protection.

Investment Thesis and Risk Factors

Buy Signal: Allocate 5-7% of a portfolio to DGP (30% of gold exposure) and NEM (70%). Pair with stop-loss orders at 15% below entry prices.

Risks to Watch:
- U.S. Election Impact: ADF's backlog delays highlight political uncertainty. A pro-green energy administration could accelerate infrastructure spending.
- Gold Supply Glut: If mining output outpaces demand, prices could correct.

Conclusion: ADF's Backlog Validates Gold's Momentum

ADF Group's order backlog is more than an infrastructure metric—it's a barometer of gold sector confidence. By pairing its leading indicators with leveraged exposure via DGP and undervalued miners like NEM, investors can position themselves to profit from a gold rally fueled by inflation and geopolitical instability. The time to act is now, before the next leg of gold's ascent.

Gary's Take: “When infrastructure backlogs rise, gold follows. DGP and NEM are the keys to unlocking this trend.”