The Next Bull Market in Precious Metals

Updated with recent gold price movements

NEW YORK ( TheStreet ) -- Gold prices have popped 9.7% year to date after reaching a record intraday high of $1,264 an ounce, and the next bull market is in rare earth metals, says one analyst.

James Dines, editor of The Dines Letter, uses mass psychology to identify bubbles before they burst. Although he is a self-proclaimed expert, Dines reportedly urged subscribers to buy mining companies in 2001 to take advantage of a coming bull market in gold.

Since then, gold prices have popped 353% while large-cap miners like Randgold Resources ( GOLD) -- although the company didn't list on the Nasdaq until July 2002 -- and Newmont Mining ( NEM) have risen 618% and 246%, respectively.

Now Dines says rare earth metals will see the next big bubble, and he is recommending that investors buy them. Reportedly, three of his current stock picks have skyrocketed 813%, 1,148% and 3,775% since September 2008. It's impossible to know if his assertions are, in fact, accurate because he refuses to reveal the names of these picks, but he is not alone in his bullish thesis.

For example, Jason Hamlin, president and founder of Gold Stock Bull said in his premium newsletter in September 2009, "I haven't been nearly as excited about the investment opportunities in a new sector as I am about rare earth metals." And Jim Jubak, MSN Money columnist, also identified this space as a rare opportunity in mining stocks.

I spoke with James Dines to give investors a snapshot of the rare earth metals story, which offers investors a way to speculate on resources beyond gold and silver.

First of all, what are rare earth metals?

Dines: Rare earths are a series of 17 elements that have very exotic uses but quintessentially so. They're very little understood, and I've been studying them for several decades and finally announced a major bull market on them in May two years ago when they were completely in the cellar, in the dog house, and the stocks were selling for pennies.

What I realized was that China controlled 96% of the world's output and that they are absolutely essential. For example predator missiles, you can't build one without a rare earth metal ... One windmill requires two tons of rare earth or it won't work... And you can't build a Prius without rare earths.

There are only about a dozen major rare earth metal deposits in the world and they are very difficult to separate because they are such similar elements in terms of atomic weights. The shortage is also extreme because China has decided to diminish its exports and it has been doing so in recent years by about 6% a year because they want to use these rare earths for themselves.

I actually heard that China's also drawing up new plans to have rare earth metals exports limited to 35,000 tons a year. Is that what you're seeing?

Well it's hard to get the numbers to be reliable, to be honest. But whatever it is, it's going to be diminishing, and they have a very heavy export tax on it ranging from 15% to 25% on price.

There are other rumors also. Number one that they're setting up a stockpile instead of exporting any at all, that they're going to cut off all exports possibly in order to close down the illegal production in the country. Apparently there are quite a few mom-and-pop places that are producing them and really fouling the environment badly and then smuggling it to Japan usually mixed in with another metal and then melted and separated in Japan. So they're closing all those guys down and really taking control of the industry. They themselves are beginning to comprehend that these rare earths are going to be one of the great bull markets of the world ... One of my stocks is up 8,000% here in the last two years

What about some of the efforts in South Africa, U.S., Canada and maybe even Afghanistan to discover these rare earth metals. Do you think that's going to have a big impact going forward or is their deposit base just too small?

It's not just that they're too small, which is usually the case. It's the metallurgy. Separating these things requires very sophisticated metallurgy. China has this huge reservoir of thousands of people who really understand rare earths and can separate these metals and really understand the metallurgy. It's not like copper or gold whereyou can just dig it up, melt it, and sell it. This stuff is very very sophisticated.

When I comprehended that America did not produce these rare earths and that China controlled 96% of the production, I realized that we were at the dawn of a tremendous bull market, and believe me, it's just beginning, this is going to be huge and it's completely below the radar.

So how can an investor get in on this? Because you can't buy a rare earth metal right, you've got to go to stocks.

No, that's not the truth -- there is one way to buy it. One of the stocks in my supervised list, and I really can't mention any specific stocks but I'll give you a broad hint. There is one stock that actually buys these metals and puts them into storage. It's the only way to get them.

So there is one company that will buy and store it for you. Are there other companies that you can look into that just focus on the mining or the separation?

Yes, we have ... six of them that we like very much. I can't give you all of them because that wouldn't be fair to my subscribers, but I will give you one. Rare Elements Systems is a very good one because they've got very good metallurgical knowledge and furthermore they've also acquired from Newmont Mining ( NEM) a promising gold deposit on the same property.

So do you tend to look for companies that do have a mixture that has gold and then also has rare earth or do you tend to just want to zero in on rare earth?

I really wanted rare earths, but to me the gold is a bonus. It's like uranium, there's a stock called Frontier that has wonderful uranium deposits but also has gold interests. And that is the only uranium that's really making new highs these days. To me that's what I call a kicker, and sure, I look for that, but you don't always find that, but to me, I've gone through all of the rare earth companies and our research department has narrowed the list down to six. And we've recommended that people buy all six.

How long is your time horizon and what have they done so far? What's your track record?

Well they've risen tremendously. They had a phenomenal run-up once the initial blast was realized. When we were sent out a special interim warning bulletin that China had 96% of the world's production, the following week China announced, yes that they did. I blew their cover. But that was a tremendous rush and ... they've pulled back a little bit and they're into a buy zone again. And I would not hesitate to go enter them immediately.

And for how long do you hold these for?

I intend to hold them for several years. I don't have a specific date. I mean, this is not an annuity. This is going to depend on everything that The Dines Letter does, which is mass psychology and technical analysis.

And how much have they run so far? You said one went 8,000% in the last two years?

Yes.

What are some of the risk factors here to your thesis?

The risk factors to my thesis is that somebody might find a substitute ... but people have been looking for that for many years, and they have not been able to find it. So I don't think any substitute is likely. Quite frankly, I don't see any risk factor here, which worries me anyway.

Let's move to gold. Do you think gold's a bubble?

When I first recommended gold at $35, they laughed at me. And nobody's laughing now over $1,000 an ounce. And I've heard bubble all the way up and I've heard all the arguments against gold, but gold -- just in the last 10 years -- is up 336% and I'd be challenging you to find any other asset class that's done that.

This is the real thing as people are mystified as to where to put their wealth, as they lose one asset class after another, including real estate recently and mortgages. The one thing that you have to realize is that governments worldwide are printing all the paper they want. Bubbles are invisible to those inside the bubble, and the bubble that's invisible is that every government is printing all the paper they want and people accept this as normal. That's the real bubble. And the more paper they print, the more pieces of paper chase each ounce of gold. That's why the price is going up.

How high does gold go?

My prediction, my latest signal was at $288 on 25 September, 2001. And at that time, I said I was looking for a rise between $3,000 and $5,000 an ounce, which is the minimum and of course, people just didn't believe it.

But personally, I don't think people really understand what's happening in the world in terms of currencies, which is why one country after another gets picked off. It's not just the U.S. It's Greece, Spain, Hungary, whatever, and more and more will happen, Japan, until there's an all-out terrible crash somewhere ahead where the currencies cave in. You cannot have a currency system where any country can print whatever it wants. It does not represent the true wealth being created. Gold does not have a price. Gold is money, and it commands a different number from pieces of paper in each country depending on how much they've printed.

When do you think will it hit $3,000-$5,000? Is this near-term or is this in the next 10 years?

I don't know. It depends on political decisions. I'm sure it's going to happen. And I suspect it will be much sooner than anyone thinks. Gold is in a very aggressive up trend. And I know we're early in the move because silver has yet to catch up with it. Silver and gold normally move in tandem with each other because they're generally equivalent. A gold coin is just as good as a silver coin anywhere in the world, doesn't matter what's stamped on it. So I would say that it's not imminent but that we're nowhere near the top.

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So if investors can still buy gold, how do they buy it?

There are many ways to do it. There's ETFs, there's raw gold, coins. It depends on the person's risk profile. And each person really needs to examine their finances and ask themselves what would happen if what happened to Korea happened to you? One morning you woke up and your currency was drastically devalued and only a few hundred dollars would be allowed to be transferred into the new currency. You basically have your savings wiped out. You have to ask yourself should you have gold? And silver? And the answer's very emphatically yes. That's a long question. I really couldn't answer it briefly. See our rare earth metals slideshow.

Lanthanum

Uses: movie studio lighting and projection, special eye glasses, energy conservation, camera lenses

Cerium

Uses: cigarette lighters, self-cleaning ovens, movie studio lighting

Praseodymium

Uses: cigarette lighters, movie studio lighting and projection, welders' goggles

Neodymium

Uses: welders' goggles, coloring enamels

Promethium

Uses: nuclear power battery, potential portable X-ray source, possible power provider for space probes and satellites

Samarium

Uses: movie studio lighting, optical glass or lasers, magnet material, neutron absorber in a nuclear reactor

Europium

Uses: Color TVs

Gadolinium

Uses: color TVs, microwaves

Terbium

Uses: color TVs, stabilizer of fuel cells

Dysprosium

Uses: various nuclear applications, laser materials

Erbium

Uses: dye in glasses and enamel glazes

Ytterbium

Uses: stainless steel
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-- (symbol) by Alix Steel in New York.

>To contact the writer of this article, click here: Alix Steel.

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Alix joined TheStreet.com TV in February 2007. Previously, she held positions in film and theater production, management, and legal administration. Alix has a degree in communications and theater from Northwestern University.

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