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On The Road With Rhodium

Tuesday July 19, 2011 12:16 PM

With simultaneous headlines blaring “Gold May Rise” and “Gold May Snap Its Run” everything the financial world this morning was as “normal” as usual. Some see the achievement of a long-standing target at the $1,600 mark as only the start of a parabola that would lift the yellow metal to its inflation-adjusted $2,300 zenith. Others warn that the wall of worry that the “gold market has been climbing in recent weeks is close to disintegrating.” Welcome to another installment of Monty Python’s “Confuse-a-Cat.” A world where experts advise and where the advisees remain as baffled about what to do as they have ever been.

For the time being, the only concrete evidence of some amount of steam being leaked from the golden locomotive was this morning’s minor opening loss of $4.10 per ounce. Spot gold was bid at $1,601.00 the ounce in New York despite (another cat-confusing item) the slightly weaker US dollar and despite the lack of a Washington budget-talk breakthrough. Overnight highs came in very near the target of $1,615.00 that was mentioned yet again in last night’s short-term update from the analytical team over at EWI. The update’s summary was that “the burst to $1,615…remains possible but it should mark the end of gold’s long rise.”

Market guru Dennis Gartman was equally…equivocal in his morning comments today. On one hand he noted that “The world is shunning fiat currencies and is rushing to embrace gold as the only long-standing currency.”  Then, he added that: “A correction of serious consequence is coming. Eventually there will be a massive crack in gold and silver.” Might as well simply roll the die or toss a coin, Mr. or Mrs. Feline.

Silver prices drifted 29 cents lower this morning, opening at $40.26 per ounce. The white metal continues to ‘non-confirm’ the bull move in gold and albeit it has rallied to a new so-called ‘counter-trend’ high and has practically finished a 50% retracement of the decline it underwent from $49.91, it needs to maintain above $35.70 lest if were to restart on its way down. The potential for a hike up to the upper levels of the $43.00 area is still there at present however.

Platinum and palladium declined in sympathy with precious metals this morning in New York. The former dropped $3 to open at $1,768.00 and the latter fell $2 to start at the $792.00 mark per ounce. Rhodium remained static at $1,975.00 on the bid. The noble metal is still in ‘stealth’ mode at the present time albeit it might contain a quite decent gain potential in light of some recent developments on the market as well as the scientific fronts.

Researchers have long struggled to develop commercially viable on-board hydrogen fuel cells (see the Honda FCX). The problem ultimately remains the large-scale production and distribution of hydrogen gas, given the current global infrastructures. Just last week, we learned that scientists in Singapore have however come up with an ingenious method of using on-board mini-reactors to, in effect, “convert” gasoline into hydrogen by using two unique metals and high-temperature steam.

Ethanol (sourced from biological materials such as algae for example) can be used for such conversion purposes but it will require a catalyst that employs rhodium crystals and iron oxide nano-particles deposited on a solid substrate. Thus far, the research team has been able to generate about four units of hydrogen from each ethanol molecule they ran through this surface. No CO by-products were generated in the process; a big plus. We look forward to Mr. Luwei Chen and his co-workers at the A*STAR Institute of Chemical and Engineering Research and the National University of Singapore bringing mass-market on-board ethanol-hydrogen converters into implementation.

Along with that story of technical progress, we also look forward to a whole lot more investment ‘attention’ to be paid to rhodium, real soon. In this writer’s opinion, at this price equation, the next 35%+ return from a scarce metal is most likely going to emanate from the rhodium and palladium market, as opposed to the gold one. Many of the required ingredients are there; scarcity, unreliable supplies, inelastic user demand, lack of substitutes (for rhodium), exciting new, present and future-tech applications.

It turns out that some folks have already been paying ‘attention’ to rhodium and are paving the way for a larger-scale presence for this metal in the investment arena. As you may recall, Kitco launched a physical, allocated rhodium sponge custodial account in May of 2010. ETF Securities later came to market with a “basket” ETFS (name: GLTR) that contains rhodium plus the other four metals that are popular with investors.

Two months ago, Deutsche Bank AG unveiled is Physical Rhodium ETC. That vehicle is backed by a direct investment in underlying, segregated physical rhodium (also in the form of bottled sponge) being held with Johnson Matthey PLC in the UK. One may buy initial entitlements of 1/10th of an ounce and the annual account fee is 0.95%. The initial interest in the Deutsche Bank instrument was quite encouraging, sources at the bank indicated.

Meanwhile, Bloomberg reports that there is a…difference between wanting to make money, and wanting to make MONEY at any cost. There is also difference between being simply being mad at regulators and legislators, and being MAD at them in a manner sufficient to seek their being “rubbed out.”

Reuters reports that A former commodities trader pleaded guilty on Monday to threatening to kill more than 40 financial regulators, including the heads of the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. Vincent McCrudden, 50, admitted in court that he posted the threats on his company's website last December, asking for help executing his plan. His guilty plea came the day testimony was to begin in his federal trial, said his lawyer Bruce Barket.”

We will skip the daily update on the topics of the EU’s ‘imminent demise’ as well the “US’ ‘imminent default’ as there is still nothing to report. The dates (July 21 and August 2nd) still stand and any pertinent developments will be covered when and if they occur. Let us take the time instead and cover the underlying issue within the latter topic.

What it comes down to, according to Marketwatch’s Mark Hulbert, who has been tracking the bond market and its behavior, is that the odds of a US default are….”next to” …zero. Mr. Hulbert specifies that the statement is not simply opinion; it is the “collective judgment” of the bond market; a market where Treasury yields have…fallen amid the barroom brawls in Washington.

Until tomorrow,

Jon Nadler
Senior Metals Analyst – Kitco Metals


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Week of July 11, 2011

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