Many clean energy projects require quite a bit of dirt along the way...so the time is right for buying into the rare earth and uranium sectors, says Jeb Handwerger of GoldStockTrades.com.

Increasingly, investors may look to cheaper, out-of-favor sectors such as uranium and the rare earth sector. They are crucial for the clean carbon-reducing future of emerging nations such as China and India, which are dealing with dangerously high levels of air pollution from dirty coal plants.

If a rotation takes hold, look for exceptional gains in the clean energy metals, which have been basing for over two years.:

  • uranium, Global X Uranium ETF (URA)
  • platinum, UBS E-TRACS Long Platinum TR ETN (PTM)
  • palladium, ETFS Physical Palladium Shares (PALL)
  • rare earths, Market Vectors Rare Earth/Str Metals ETF (REMX)

The materials sector historically lags the financials and industrials in an expansionary cycle, but eventually outpaces as a bull market develops. Over time, I have found it wise to buy cheap commodities when equity markets are overbought.

We have witnessed an extremely peculiar rally in that US equities are hitting new highs at the same time that uranium and the rare earth sector is hitting a new low. This should not last for much longer, as a recovering global economy demands clean and cheap energy, fuel efficient/low emission vehicles, and high-tech products such as smartphones and iPads.

This could easily cause supply shortages for critical metals used in lighting and monitors, such as europium, terbium, yttrium, dysprosium and neodymium.

A reason for this underperformance in rare earths is that Asian markets have not yet kept pace with the rebound in US equities. However, that may change, as a strong US consumer is a boom for Chinese and Japanese exporters.

In the past six months, the iShares MSCI Japan Index (EWJ) has outperformed all other markets, including the United States. This may indicate the beginning of an inflationary rally in Asia, and may signal that Chinese and Japanese markets are ready for a rebound.

The iPath DJ-UBS Copper TR Sub-Idx ETN (JJC) jumped higher, and may be bouncing off of a major bottom around $3. Rare earths may follow that performance, as it tracks copper closely.

Do not avoid the rare earth metals sector, where we may see short covering, combined with new buying from investors who are sitting with hefty gains in equities. Double-digit gains could be expected.

Rare earth prices have been under pressure due to the weak commodity environment and major stockpiling in 2010. Nevertheless, according to many sources, industrial end users will look to secure deals, possibly in the second half of 2013, which should support rare earth prices and the value of some of the junior miners.

Look for the critical rare earth miners advancing towards feasibility in mining stable jurisdictions where there is a history of mining and infrastructure.

Uranium is also seeing a strong pickup in demand, as China is building new reactors and Japan is planning to reactivate additional reactors, possibly as early as this summer. The Russian HEU agreement which supplied converted uranium from warheads is also set to expire by the end of this year.

Keep a close eye on deposits that have uranium and rare earths together, as it is quite unique and has economic advantages. The uranium can pay for most of the operating costs, and provides diversification to the investor.

Look for leverage to rising rare earth and uranium prices as the world looks to develop cleaner-carbon free solutions.

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