Rare earth oxides (REOs) rare earth elements (REEs) aren’t just hot, nor are they just on fire.  The have gone supernova.  While there is an obvious bubble forming due to concerns of Chinese supply and due to the need of a domestic go-to source being vital to national security, Molycorp, Inc. (NYSE: MCP) has hit a new post-IPO high today on word that it was opening part of its mine that had been closed since 2002.

Molycorp shares are up 8.1% at $49.04 and today marked a high of $49.99.  Will it go higher?  Why not… Bubbles and the markets often go long beyond logic and they defy reality, until they don’t.  The move today is creating a surge elsewhere.  Rare Element Resources Ltd. (NYSE/AMEX: REE) is up 8.75% at $11.05 on strong volume.

The newer play in the sector is Avalon Rare Metals, Inc. (NYSE/AMEX: AVL) is up a whopping 22% at $5.49 on more than 7-times normal trading volume.  Avalon is a rare earth player in Canada and is one of that large list of Canadian rare earth plays we discussed in more detail in November.

Oddly enough, this Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is not participating with shares up only $0.01 at $21.43.

If China keeps its hard-ball stance against exporting rare earth elements or if the U.S. is willing to pay whatever it takes for a solid supplier of rare earth materials, this bubble may never burst.  The difference here between reality and perception is that Molycorp now has a market cap north of $4 billion without having generated any real revenues and without gone through the challenges of being a mining restart.

JON C. OGG