Gold Alternative #4: Rare Earth Metals
Unlike the other precious metals listed here, you probably won’t find rare earth metals in bar or coin form – though it’s probably only a matter of time before this idea gains currency (pardon the pun).
Rather, the appeal of rare earth metals is the fact these are the elements of the 21st century, used in space-age gear, from lasers to superconductors to X-ray machines. If you believe in a high-tech future, which is all but certain barring complete economic Armageddon, you should believe in rare earths as a good long-term investment.
There’s no easy index or futures market for rare earths, since the category includes more than a dozen different elements. But from a demand view, consider that 10 years ago, the world used 40,000 metric tons of rare earth metals per year. Today, the world uses 125,000 tons, and that’s expected to grow to more than 200,000 tons by 2014. Some estimates contend production must grow by more than 60% to keep pace with demand, or else we face a serious shortage. News of a big ocean-bed find by Japan has squashed talk of a Chinese monopoly on rare earths, but even this hefty find in the Pacific can’t change the fact the metals are highly scarce. Hence the term “rare earths.”
Investing in rare earth metals is tricky. Although the potential seems great for rare earths, there are few practical ways to invest in this commodity. Perhaps the best examples are Rare Element Resources Ltd (AMEX:REE), with a market cap of $400 million, and Molycorp, Inc. (NYSE:MCP), with a market size of about $4 billion. Both trade on legitimate U.S. exchanges, and both have tallied dramatic returns. REE is up 200% in the past year, while MCP is up over 400%. There also are pink sheet, foreign and microcap stocks that are pure plays, including Rare Earth Metals (PINK:RAREF), which mines in Canada. For a more diversified play on rare earths, you can consider the mining majors that have a stake in rare earths, as well as conventional metals. For instance, just recently, Aluminum Corp of China (NYSE:ACH) announced plans to take a majority stake in two China rare earth metals companies totaling at least $1.5 billion.