The rod will drop it just takes awhile. I have done all the "watch" quest up to this point and it always takes awhile for the rod to drop for me. Just be patient, enjoy the awesome xp, and the rod will definitely drop for you.
I wouldn't exactly call them common. Gear 1 and 2 dropped fairly quickly. 3 took a while and I've been here for 2 levels now and still haven't seen a Polished Rod drop.
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"Is it just me or did that dragon just look at us funny?"