An exchange traded fund that tracks companies in the rare earth and strategic metals sector gained 3% on Friday following upbeat earnings from Molycorp (NYSE: MCP), a top holding.

Molycorp shares were up more than 10% after the company said it swung to a second-quarter profit while revenue rose.

“We are very pleased with our accomplishments this quarter, as we successfully completed two acquisitions that advance our vertically integrated mine-to-magnets strategy,” said Mark Smith, Molycorp chief executive, in the earnings release. “Global demand for rare earths remains very high, and supply outside of China continues to be tight.”

Molycorp is the third largest holding in Market Vectors Rare Earth/Strategic Metals ETF (NYSEArca: REMX), which climbed 2.7% on Friday. It holds assets of about $340 million.

“We believe that Molycorp remains a best-in-class rare earth play and expect that as metal prices remain high, the company will generate significant cash flow,” said CIBC analysts in a recent note. “These are all near-term issues for the company. It will also certainly be a challenge to fully integrate all of its new assets over the next year; however, we believe the potential returns that can be realized once everything is fully integrated and scaled up will be enormous.”

Gareth Soloway for InTheMoneyStocks reports that there are three major contributors to the rare earth rally:

  • A continued fear over the Chinese monopoly of this sector; Chinese officials have denied accusations of manipulating the run-up in rare earth prices. In response, companies in Australia and North America are ramping up efforts to reduce dependence on China for these metals, and gain market share.
  • The future need for these metals is questionable because they are used to create semiconductors and auto parts.
  • The haven-like quality of  rare earth metals are similar to the role that gold has played during times of market volatility.

Market Vectors Rare Earth/Strategic Metals ETF

Tisha Guerrero contributed to this article.

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