Will China Wield Its Secret Weapon Against America?

In the flurry of news in the past week, you might have missed the news out of Beijing: China is exploring limiting the export of rare earth minerals.

In other words, China has the power to cripple America’s military and new “green” economy. And they just might use that power.

The news came in a story from London’s Financial Times. China quickly denied that it was considering restricting rare earth exports to the U.S. for military reasons. But then again, it has OTHER reasons to restrict rare earths.

What are rare earths, anyway? I sent my subscribers a full report on this in January. The brief version is “rare earths” as they are called, are not that rare — they’re about as common as copper. But rare earth deposits that are economical to produce ARE rare.

Rare earths are a group of 17 lustrous silvery-white, soft heavy metals with different properties that are used in manufacturing goods. Some rare earths — particularly neodymium (Nd) and praeseodymium (Pr) — are critical for high-performance magnets used in cell phones, electric vehicles and wind turbines — all sorts of things!

One of those things is the advanced F-35 fighter jet. In fact, there are about 417 kilos of rare earths … in each plane!

And that’s what has the Pentagon worried.

Chinese Market Dominance

About 70% of known rare earth reserves are in China. China’s major rare earth mine is Baiyun Obo, located in Inner Mongolia. It’s the world’s largest known REE deposit.

China has controlled the world’s rare earths market for years, raising and lowering prices like a yo-yo to crush competitors. As a result, refineries in places like the U.S. shut down, and China now controls about 90% of the world’s market. The U.S. imports 80% of its rare earths from China.

Now, you can see the grip China has on us. And they will use it. They’ve done it before.

In September 2010, China cut off rare earth exports to Japan as those two countries feuded over a fishing boat collision. More recently, China publicly talked about restricting exports to the U.S. after President Trump restricted exports of U.S. high-speed computer chips to China and raised tariffs on Chinese goods.

That alarmed the White House and the Pentagon enough that President Trump signed an executive order aimed at expanding domestic output of rare-earth minerals last year. And the Department of Defense was ordered to spur the production of magnets.

The U.S. has a long road ahead of it. The small amount of rare earths that are produced in the U.S. must be shipped to China for processing as we simply don’t have the refinery capacity.

That will change over time. The U.S. will expand its own capacity and urge more production from its friends in Australia, Canada and elsewhere.

Meanwhile, China’s exports of rare earths are falling, down by 33% year-over-year in December. That’s not malevolent. China has its own high-tech industries and needs rare earths as much as we do. But obviously, the clock is ticking on developing sources of rare earths outside of China.

But this isn’t a reason for fear. What we really have is a fantastic investment opportunity.

After all, aside from potential Chinese export restrictions, the global rare earths industry is expected to nearly double from $8.1 billion in 2018 to $14.4 billion in 2025. That’s thanks to rising demand for EVs, cell phones and microchips.

Now, let’s add in that the Pentagon is throwing money at the industry. Heck, yeah, you want to invest.

My Gold & Silver Traders did just that. One pick I recommended was the VanEck Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX). This fund holds a basket of rare earths companies. Its top holdings are Chinese — China Molybdenum, Zehjiang Huayou Cobalt, China Northern Rare Earths Group, Xiamen Tungsten.

But it also has non-China companies, including Lynas Corp. (OTCQX: LYSCF), Lithium Americas Corp. (NYSE: LAC), Pilbara Minerals (OTC Pink: PILBF) and Livent Corp. (NYSE: LTHM).

Take a look at the chart …


 

You can see that REMX is rallying, even gapping higher. On the bottom of the chart is my favorite momentum indicator, the Force Index. It’s not only bullish, but also getting stronger!

My Gold & Silver Trader subscribers already have nice double-digit percentage gains. But that’s just the tip of the earthberg. There’s a lot more to come.

To be sure, you not only have to know what to buy … you need to know when to buy.

I’ll give my subscribers the signal when it’s time. (Click here if you want to learn more about my Gold & Silver Trader strategy.)

If you’re doing this on your own, do your homework and be careful.

All the best,

Sean

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