The trigger occurred on Aug. 18, 2009, when ArafuraResources Ltd., an Australia developer of a rare earth deposit that is now controlled 25% by a Chinese state-owned mining company, broadcast far and wide news that China's Ministry of Industry and InformationTechnology had published a draft report entitled "Rare Earths Industry Development Plan 2009-2015" which outlines plans to further tighten control of the supply of rare earth oxides and their downstreamproducts. The draft report apparently includes a plan to ban outrightthe export of dysprosium, terbium and ytterbium, though since thenChinese officials have back-pedaled on this proposal.

These rare earth elements belong to a group classified as "heavy," which usually occur together in meaningful quantities in peralkaline intrusive complexes such as Thor Lake, Strange Lake, Bokan, and Kipawa, the flagship projects of Avalon, Quest, Ucore and Matamec, but not in carbonatite intrusivec omplexes such as Mountain Pass, Mt Weld, Bear Lodge, and Hoidas Lake, the flagship projects of Molycorp, Lynas, Rare Element and GreatWestern. Although there have been rumblings for several years in end-user circles about long term security of supply problems involving rare earth elements, this overt sign that Chinese officials are also thinking hard about the problem has ignited serious interest in companies with rare earth deposits outside of China..........

..........Since then (April 2009) the Rare Earth Index has gained more than 700% with help through the addition of six juniors with advanced rare earth projects,significantly outperforming gold and the TSXV during this period. This remarkable gain is due in part to the very low stock prices of the recent additions created by the Crash of 2008, but volume is flowing into the Australian and Canadian listed members of the Rare Earth Index at current prices and there is every indication that this market activity is just the beginning of a Rare Earth Mania............

..............Barring another catastrophic financial crisis, I do think goldwill continue to hold its head up and mount what may finally be an enduringly successful assault on the $1,000 milestone, which could shore up market interest in non-gold speculative resource juniors even while the senior equity rally fizzles. But I wish to make the case that the members of the Rare Earth Index are participating in a Rare Earth Mania that has barely begun and can flourish regardless of the troubles that may emerge in other sectors............

.........Some market observers have been dismissive of the rare earth juniors and even suggested that they make good short-selling candidates. Because Rare Earth Mania is still in its infancy there is a lot of volatility in this sector that can be exploited by nimble traders. But it would be foolish to put a serious rare earth short position in place, because these stocks are literally a tail wagged by a very big dog whose nature was made crystal clear in August through the Chinese draft report on China's plans for the rare earth sector...........

.............Rare earths have special properties which new technologies tap to bestow efficiencies and functionalities onto physical goods such as super magnets and energy efficient lights. They accomplish this in a way where there is no substitute outside the rare earth element group itself, and they do this by being a tiny physical input to the end product which also represents a fraction of the product's final cost. The suppliers of rare earths thus have pricing power in that they could quadruple the price without affecting the end-product's demand, which could conceivably boost the annual value of rare earth oxide production into the $5-$10 billion range. Because China currently supplies more than 90% of the world's rare earth production it has a near monopoly that should enable it to boost prices by restricting supply. But China has strategic and economic reasons not to pursue a cartel strategy............