Spotted this article at National Geographic

Explaining Rare ‘Hole Punch’ Cloud With Rainbow in the Middle

Bubblecar posted a picture of one yesterday

I’ve seen something similar during a big storm near Cooma. It was simply a break in the clouds on the horizon with a rainbow behind them and it was impressive.

Seeing one of these rainbows would take it to a hole new level.

> Refraction of sunlight by the ice crystals results in the rainbow, while the arrangement of those crystals gives us a bright patch of light in the middle called a sun dog.

Good, that’s how I read it. Be aware that the “rainbow” associated with ice crystals is not at all similar to the normal rainbow produced by water drops. In particular, the orientation of the axis of the ice crystal affects the pattern of light.