Rhodium: The Ultimate Reflationary Trade

With the Federal reserve yesterday writing on the wall that it will reflate at any cost, much more aggressively than Japan ever did, it is important to watch the behavior of precious metals. Gold staying so strong against the world's major currencies while oil collapses and banks hoard money points to a fundamental devaluing of most of the world's currencies while central bankers focus desperately on how to prevent deflation, all despite the very real economic slowdown. Naturally, it is worthwhile to evaluate the precious metal space for opportunities to hedge this risk to buying power.

Rhodium, one of the rarest naturally occurring metals on the planet, is mostly demanded for use in sparing amounts in automobile catalysts. Increasing emissions standards have played positively to long term demand. A position might serve a dual purpose, rather than solely an inflation hedge. For an investor looking to bet on the auto industry, this metal should serve as a proxy to longer term recovery of automobile demand. There is no risk to exposure of deficient cashflow of automobile manufacturers as with their stock and bonds, which extended periods of recession inevitably serve to amplify. Rhodium may be a better bet with plenty more upside. The probability that Rhodium goes to 1972 levels of $200/ounce, considering its rarity and potential for jewelery use, is unlikely, and if so presents an opportunity to accumulate.

Looking at the 5 year chart, there is enormous upside potential if auto demand ever comes back. With the largest platinum producers tuning down production from South African mines (really the only substantial source), near term oversupply should be worked through regardless of the industry slowdown. At offer of $1160/ounce on ask, it offers a potential lottery ticket in a precious metals portfolio. If it falls below gold, the value proposition seems even more substantial. Not priced far above gold or platinum and much rarer (and usable in Jewelry), it offers plenty of potential as a store of value.

Stock position: Long Rhodium.

Comments

[g'pa:]

And just how does one go long rhodium??

2008 Dec 18 10:12 AM

[Michael B. ...:]

You can procure it from some Jewelry stores as a powder or you can obtain a position in it from Kitco via their pool accounts.

2008 Dec 18 10:32 AM

[alessio:]

thanks Michael..
I've spent a lot of time searching a rhodium etf , but no resoult about...
I've found just abn ambro certificates ..but a lot of people told me to stay away from abn products...performance of matirial is not the same of certificate, expecially in the way up...
I'll ask kitco immediately...
(I pologise for my scolastic English)

Thanks Alessio

2008 Dec 18 04:04 PM