Rhodium Trading Thoughts

RHODIUM TRADING THOUGHTS is about timely and profitable trading of precious metals. We do not believe every turn in the market can be called. Our goal is that our recommendations should be profitable. Profits are the goals, not trades. Do not expect all recommendations to be profitable. No system can achieve that lofty goal. Our goal is simply to state whether conditions for a metal are favorable or not. Buy signals are issued when appropriate. These signals are generally speaking for day they are issued. If price remains below signal price, buying can be done. Do Not Buy signals are given when market is over bought, and buying is unwise. Blue triangles indicate an over bought condition. These would not be good times to buy, so they are labeled Do Not Buy. Software is not showing complete legend, for some reason.

Global shortage of important metals and minerals is now becoming more widely acknowledged. For example, “E.U. Faces Shortages of Key Minerals” by J. Kanter, New York Times, 16 June 2010, “The European Union is facing shortages of 14 ‘critical’ raw materials needed for mobile phones and emerging technologies like solar panels and synthetic fuels, according to a study by the European Commission . . .”

“The commission is ringing the alarm bell on raw materials as China again plans to tighten its control over its rare-earth minerals by allowing just a handful of state companies to oversee the mining of the scarce elements.”

“The 14 materials identified by the commission out of 41 minerals and metals it analyzed are antimony, beryllium, cobalt, fluorspar, gallium, indium, germanium, graphite, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten.” [Emphasis added.]

“The study found that a key factor behind the shortages is that production of the materials was concentrated in just four countries: China, Russia, Congo and Brazil.”

Platinum group metals(PGM) include a number of rare metals, Rhodium(Rh) being one of them. Per Wikipedia, “The six platinum group metals are ruthenium, rhodium, palladium, osmium, iridium, and platinum. They have similar physical and chemical properties, and tend to occur together in the same mineral deposits.”

Rhodium is so rare that it is not sought out directly by mining companies. Rather, Rhodium is found when other metals are mined. Rarity of the metal makes recovery in such operations worth the effort.

A major difficulty for investors seeking to exploit these rare metals is the lack of public trading in many of them. Rhodium is unique in that some public market does exist. With little investor action in Rhodium, unlike the excessive concentration of investor speculation in Gold, an opportunity for precious metal investors to diversify their holdings exits.

As can be observed in the chart on the first page, Rh price has been pushed down in the period of EU debt turmoil. It is now trading at the level where twice before this year the metal put in a bottom. It is moving toward the down trend line, and a move through that would bring some encouragement.

Chart to right is ratio of price of Rh to Au. High level of speculation has pushed $Gold to short-term over valued level. That action has depressed the ratio Rh/Au to an extreme. The combination of what we are observing in these two charts suggests that investor with large positions in Gold might benefit from diversifying into Rhodium.

$Rh should be bought. We would not be buying Au at the present time.