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So the section on Rods mentions with its activation that:

Activation

Details relating to rod use vary from item to item. See the individual descriptions for specifics.

The Metamagic Rod section says that:

All the rods described here are use-activated (but casting spells in a threatened area still draws an attack of opportunity).

And finally the section on Use-activated reads (snipped the irrelevant parts):

Use-Activated

This type of item simply has to be used in order to activate it. A character has to drink a potion, swing a sword, interpose a shield to deflect a blow in combat, look through a lens, sprinkle dust, wear a ring, or don a hat. Use activation is generally straightforward and self-explanatory.

Many use-activated items are objects that a character wears. Continually functioning items are practically always items that one wears. A few must simply be in the character’s possession (on his person). However, some items made for wearing must still be activated. Although this activation sometimes requires a command word, usually it means mentally willing the activation to happen. The description of an item states whether a command word is needed in such a case.

Now, the specific rods mention nothing about "must wave around" or "must have in hand" or anything. Many of the others do. This makes me think that a Metamagic Rod simply has to be on your person in order to work. But is this correct, or must I be holding it?

And if it has to be on my person, does stuffing it in extra-dimensional space on my body count? Ideally I want the rod to be in my Handy Haversack, because my Str 8 Halfling simply doesn't have the carrying capacity for the thing.

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Description of each rod states:

The wielder can cast...

Meanwhile, to wield means:

to use (a weapon, instrument, etc.) effectively; handle or employ actively.

More definitions, all pretty similar.

The Magic Item Compendium seems to clarify it even further. Activating Magic Items section (p. 219) includes this sentence:

A rod or wand must be held in your hand

Also, each rod described in the compendium (including metamagic rods from sources other than DMG) has the following entry for "Body Slot":

-- (held)

For some softer arguments

Take this sentence from the confusing "Use-activated" section in the SRD:

Use activation is generally straightforward and self-explanatory.

Obviously it is not for rods, but it should. Substitute "rod" with "scepter" (because Rods are scepterlike devices) and it may become more clear. "Using" a scepter is probably a bit more self-explanatory - imagine a king holding a scepter hidden under his cloak.

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  • \$\begingroup\$ Also a good argument. \$\endgroup\$ – Erik Aug 7 '15 at 22:11
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MIC's wording, per burlap's answer, is very clear, and even the rod descriptions' inclusion of "the wielder" puts doubt on this answer. Original answer:


Reading a little further in the section on metamagic rods, we find this:

Possession of a metamagic rod does not confer the associated feat on the owner, only the ability to use the given feat a specified number of times per day.

There it is in black and white: while possession doesn't actually give you the feat, it does let you use it.

Possession isn't very clearly defined anywhere, but it seems reasonable that, at the very least, any item attended by a character is in that character's possession*. That doesn't necessarily qualify a rod in a handy haversack by itself, but it's hard to imagine a case in which something entirely contained in an item you possess is not something you also possess.

*Possibly barring conflicting attending characters, or items that the character physically cannot move.

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  • \$\begingroup\$ Ah, I hadn't considered that part to refer to how the item was used, but that does make sense. \$\endgroup\$ – Erik Aug 7 '15 at 18:59
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    \$\begingroup\$ @Erik: For what it's worth, I don't think I'd play it this way; I'd just houserule that MM rods must be wielded. But I do think this is RAW and I do think it is playable. \$\endgroup\$ – user17995 Aug 7 '15 at 19:02
  • \$\begingroup\$ Any owner can clearly use the rod: the question seems to be about activating it without using in the sense of wielding. \$\endgroup\$ – Tim Lymington supports Monica Aug 8 '15 at 0:16
  • \$\begingroup\$ @TimLymington: Yes, and that's precisely what this answer claims. You may disagree, I suppose, but the point is this: possession and casting a suitable spell in the proper manner is all that's needed (as far as I can tell) for MM rods to be activated. \$\endgroup\$ – user17995 Aug 8 '15 at 0:27

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