New York spot trading was rather dull during this final session of the week, showing a $4.00 gain at last check, quoted at $924.50 per ounce. Nonetheless, the yellow metal gained nearly 3% on the week as the dollar took its largest dip since March. Aside from benefiting from the impact of poor home sales and inventory figures on the US dollar (now at 71.95 on the index), gold also received some support from a bit of a pre-weekend revival in oil, which reached $131.16 and remained within $4 of yesterday's all-time high. Silver rose 25 cents to $18.21 and platinum climbed $8 to $2171 per ounce. Palladium also gained on the day, rising $2 to $457 and rhodium surged $225 per ounce to $9785 amid reports that a second year of deficits is in the making for the rarest of all precious metals and that a $10K price is plausible.
What is it that gives this unique element the bragging rights to being the world's most expensive precious metal?For this slow news day, we bring you a primer on rhodium and rhodium investing, courtesy of NuWire Investor's reporter Brad Zimmerman:
" Rhodium, like palladium, is a member of the platinum metals group; it is frequently used to harden alloys of platinum and palladium. Rhodium is a key component in the in the world automobile industry. Rhodium investors have seen the metal's price increase rapidly during the last five years, but with a soaring price comes the worry that the bubble may eventually burst.
Some of rhodium’s principal uses are as a finish for jewelry and mirrors, in electrical connections and in aircraft turbine engines. It is also frequently used in catalytic converters in automobiles with internal combustion engines, which help to curb emissions. Lastly, rhodium can be considered the ultimate symbol of wealth—above and beyond gold or platinum—because of its price and rarity.
Rhodium doesn’t come cheap by any means, and its price has been steadily rising since 2003, according to Kitco Precious Metals, a metal dealer. In a five-year span beginning in 2003, rhodium has averaged a price of $3,224.51 per ounce, climbing higher than $9,000 per ounce between January and April of this year. What has helped rhodium prices steadily rise is its use in catalytic converters, where—especially in diesel-powered vehicles—the metal has no substitute. Rhodium is expected to keep outpacing other precious metals in price as its need in diesel and non-diesel catalytic converters continues, according to the International Herald Tribune. Europe in particular has a high demand for rhodium, as 60 percent of all its automobiles are diesel-powered.
The methods used to acquire rhodium are quite complex, as it is one of the rarest natural metals produced in significant quantities, according to ResourceInvestor.com. No rhodium-specific mine exists; rather, the metal is mixed with other metal ores such as silver, gold and platinum, and requires industrial extraction.
South Africa holds the world’s largest mines where rhodium can be found. Additionally, South Africa is the principal exporter of the precious metal, exporting 60 percent of the world's supply of rhodium. Annual world production of rhodium is estimated between seven and eight tons, according to Principal Metals Online. In comparison, the world production of gold was more than 2,250 tons in 2006, according to the United States Geological Survey.
Recent power shortages in South Africa have cut the rhodium supply, further driving up the metal's price. With demand heavily outweighing supply, South African mining companies have been forced to slow and sometimes even halt rhodium output, with no clear resolution to the crisis expected to come until 2012. Expect world prices to continue to reflect the supply shortage. The increased cost of rhodium might also be felt in the automobile market, potentially driving up the price of catalytic converters, and in other markets that use rhodium.
Before investing in rhodium, people should take into account that the skyrocketing price of the metal could eventually come crashing down. Although supply shortages have contributed to rhodium price increases, so have the massive consumption and demand by the U.S. automobile industry, which uses more than half the world’s annual new supply of rhodium. Automobile industries in places such as China and much of Europe also play a role in rhodium consumption.
There will be no future market for rhodium, because either a cheaper substitute will be found for use in catalytic converters, or the move away from internal combustion to more environmentally-friendly hybrid or electrical engines will ease the demand for the metal, causing the price to plummet, according to ResourceInvestor.com. For now, the world rhodium market remains robust as automobile industries continue to heavily demand the precious metal. Rhodium has seen few drops in its price, and continued supply shortages in South Africa should continue to drive the price up as long as demand remains strong."
Take a look at the attached long-term rhodium chart if you want to see a truly wild pattern that actually lives up to the expression "off the charts" -:
Purchasing.com reports the latest in rhodium's fundamentals as offered by JM:
"Newly mined and processed rhodium will fell short of year for the second straight year in 2008, suggests the Johnson Matthey Platinum 2008 report released this week. Demand by the automotive industry for rhodium used in catalytic converter exceeded mine production from Western sources and Russian sales combined in 2008. And that didn’t account for other industrial and jewelry uses.
To cover the deficit, the marketplace relied on recycled material and inventoried metal. The same scenario is projected for 2008, since the deficit may grow if South African mining woes continue and reduce the amount of new rhodium supply.
Total rhodium supply rose to 822,000 troy ounces in 2007 (with mine production from South Africa accounting for 696,000 oz) from 802,000 oz in 2006 (with South Africa contributing 666,000 oz). Russian sales declined to 90,000 oz last year from 100,000 oz the previous year. Total demand for rhodium rose for the sixth consecutive year to reach 856,000 oz in 2007 from 838.000 oz in 2006, with autocatalysts accounting for 879,000 oz last year from 863,000 oz the previous year. Metal reclaimed by recycling rose to 183,000 oz last year from 171,000 oz the previous year.
The average price of rhodium soared to $6,061/oz in the U.S. last year from $4,498 in 2006. This year, the five-month price already is $8,164. This has set in motion research aimed at reducing the amount of metal used in various applications. "Sustained high priced did have an effect on consumers," says the Johnson Matthey report, which cites reduced use of the metal in some applications this year and eliminated use in others."
Overseas market will fill the gap on Monday, but we may expect the action to resume and remain an lively as it can be for late May, come Tuesday. The range remains $910-$940 for the moment and the focus is stuck on oil.
Happy Trading. Pleasant (long) weekend (to our US audience).
Kitco Bullion Dealers Montreal
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco 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 Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.