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Gold-en Opportunities in Rare Earth Element Pricing

October 22, 2010 by Kidela   Comments (0)

This is a copy of our recent blog post, 'Gold-en Opportunities in Rare Earth Element Pricing'. We encourage you to share your thoughts, and if you enjoyed the post, you can follow us on Twitter @Kidela.

Lately, popular media seems to have been fixated on the record heights reached by the price of gold – and for good reason. The rise in the price of gold over the last five years has been remarkable.

In 2000, an ounce of gold was $250 per ounce on the world market; this October gold topped the $1,380 mark, marking a 450 percent increase in 10 years. This year alone, gold has risen an almost unprecedented 35 percent from $1,016 to $1,380 per ounce.

Gold is a unique commodity; it is rare enough to be considered a precious metal but widespread enough to be readily obtainable. While it has uses as jewelry and some industrial applications, its key value is its use as a convertible currency.  It offers a refuge for investors who are still jittery about equity markets, currency and real estate. Uncertainty after the economic meltdown of 2008 has continued to fuel the flight to precious metals, and gold has seen its value rise spectacularly.

Now, sit back and imagine what would happen if gold was only mined in one country and that country cut back its exports of that precious metal by up to 72 percent.  One can only imagine what that would do for the price.

Gold is good, but . . .

However far-fetched this scenario of one country controlling the price of gold may seem, this is exactly what is happening for Rare Earth Elements (REEs). For all the hyperventilation that is happening by investors over the rising price of gold, in the last several months the price increase of a basket of REEs has outperformed gold by leaps and bounds.

According to Metal-Pages.com, price increases for REEs range from Europium, which increased from $485 per kilogram in January 2010 to $590 per kilo in August – a 22 percent increase to Dysprosium, which went up 144 percent from $117.25 to $286.50 over the same period, to Cerium, which increased from $4.15 a kilo to $33.00 over the first seven months of 2010, which is a staggering 695 percent increase.

Of the 17 elements considered Rare Earth Elements, prices have increased an average of 300 percent this year alone.

It is worth noting that while termed “rare,” these elements are not precious metals and are mined in considerably larger quantities than precious metals such as gold. The most expensive Rare Earth metal by weight is Dysprosium at a current value as of September of $305 per kilogram. Gold by comparison is $42,000 per kilo.

While continued global uncertainty has continued to fuel the upward surge of gold prices, the inevitable economic recovery and stability in equity and bond markets will surely put a damper on that ascent. Conversely, economic recovery is only going to increase demand for Rare Earth Elements and with it the basket price for all 17 elements.

Investors who have marveled at the strength of gold may well look at the potential of Rare Earth metals and conclude rare is better than precious.

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