Forget Gold & Silver for Now: This Is the Mineral Investors Should Be Playing

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There’s a rush happening in the U.S. economy, but no one seems to have heard much about it. No, it’s not for gold, silver, or oil. This time around, it has to do with rare earth elements, or what are sometimes referred to as rare earth metals.

Before going into further details about how investors may be able to profit from this situation in the making, it is necessary to know what these rare earth elements are and what they are used for.

Rare earth elements, at the very core, have many different uses. They are used in technology like cell phones, televisions, and lighting systems. They are also used in aerospace, automotive, and energy industries. Note that these are just a few of the uses of rare earth elements; there are many other uses for them, as well.

How critical are rare earth elements? According to Ian Ridley, director of the U.S. Geological Survey Central Mineral and Environmental Resources Science Center in Colorado, “without rare earths we’d be back to having black-and-white cellphones again.” (Source: “Gold rush trash is Information Age treasure,” USA Today, July 21, 2013.)

One must ask the question: why call it a rush?

As their name suggests, these elements are rare, found only in certain locations. This leaves them vulnerable to demand and supply shocks.

As a matter of fact, we saw something similar back in 2011. A rare earth element called neodymium, used in the automotive industry, could be purchased for $15.00 a kilogram in 2009. Fast-forward to 2011, and the price of this rare earth element reached $500.00 a kilogram; that’s an increase of more than 3,200% in just two years. Mind you, this is just one example of how rare earth element prices can skyrocket.

The reason for this is China, the biggest producer of rare earth elements. According to the U.S. Geological Survey, China has continued to reduce its exports of the rare earth elements. (Source: “RARE EARTHS,” U.S. Geological Survey, January 2013.)

This phenomenon, combined with the increasingly high demand for technology, is causing a basic economic problem—high demand with low supply. To fight this problem, the U.S. Geological Survey and the U.S. Department of Energy are scrambling to find rare earth elements present in the U.S. economy.

Currently, there is only one company that is producing rare earth elements in the U.S. economy—Molycorp, Inc. (NYSE/MCP).

Investors who believe this is an opportunity to profit big going forward may want to look at a company like Molycorp, since it’s the only one producing these metals. These investors also might want to look at other firms that are currently looking for these elements or have discovered them already. Once they start producing, their profitability can be significant.

Investors must also be aware that this is a situation in the making. As I have said in the past, things can turn very quickly. Right now, we are witnessing the rush because there are concerns over supply from China; this can change very quickly and the supply can recover. Investors need to focus on their risks, rewards, and long-term goals.

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