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The Forgotten Precious Metal

March 19th, 2017 by

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Periodictableru (Own work) [CC BY 3.0], via Wikimedia Commons

Unless someone is deeply involved in the commodities trade or some specialized industrial process, they are probably unaware of the market for the somewhat obscure metal rhodium. Although it is sometimes used to coat white gold or silver jewelry, rhodium’s primary usefulness is as a catalyst in automobile exhaust systems. Unsurprisingly, it is a Platinum Group Metal closely related (in appearance and properties) to platinum and palladium, which are used for the same catalytic converters.

Rhodium is an exceptionally rare metal, which helps support a relatively high spot price. You will sometimes see its price listed alongside the other “Big Four” precious metals. Now, rhodium prices are on a huge bull run. Over the last three months, the metal is up almost 17%. Over the last six months, the gains are a whopping 40%.

The most compelling reason for the surge in interest in rhodium is tied to its industrial use. Like platinum and palladium, demand for rhodium has risen along with rising car sales in China and the U.S. (Automakers enjoyed one of their best years ever in 2016.) Platinum and palladium prices have likewise climbed higher over the last six months or so, but not quite to the same extent as rhodium.

© Alexmoe | Dreamstime.com

© Alexmoe | Dreamstime.com

The reason for the gap is probably a function of the size of the rhodium market: It’s really small—especially in comparison to platinum, or gold and silver, for that matter. This means trading volumes are lower, fewer players drive action in the market, and thus prices are subject to considerable volatility. Rhodium’s recent history bears out this dynamic. During the financial crisis, prices peaked at over $10,000 per ounce! However, they have frequently traded below $500/oz before and after this spike.

Year-to-date, the rhodium price is up almost 20%, again approaching $1,000/oz and parity with the platinum price. The metal is unpopular as a physical investment, however, because it is far more brittle than the other precious metals. However, there is some buzz that the Royal Canadian Mint is offering its first-ever coin with rhodium plating this year.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.