Gold Alternative #4: Rare Earth Metals
Now for a little change of pace. Rare earths don’t come in bar or coin form. Instead, rare earth metals are appealing because of their use in electronic devices — everything from space-age gear, lasers, superconductors and X-ray machines to flatscreen TVs, hybrid cars and even Apple’s (NASDAQ:AAPL) popular iPhone. You get the point.
Like with palladium, if you think the future will continue to be high-tech, rare earths are in play. Consider that, in the past 10 years, the amount of rare earth metals used per year has tripled, and is expected to continue increasing. Some estimates contend production must grow by more than 60% to keep pace with demand, or else we will face a huge shortage.
As is the case with other metals, trading rare earths has its pitfalls.
For one, there is no easy index or futures market since the category includes more than a dozen different elements. A few ways to play rare earths include American producers Molycorp (NYSE:MCP) and Rare Element Resources (AMEX:REE), as well as Australian firm Lynas Corp. (PINK:LYSCF) — all three have been halved or worse in the past year, though REE enjoyed a massive rebound early in 2012, but has been trending down since.
But another issue is the vast majority of rare earths are found in China, so the country more or less pulls the global market’s strings — a huge source of uncertainty. However, the World Trade Organization has brought new attention to China’s export restrictions on rare earths, which could turn things around for the sector.