Overnight trading in bullion saw prices confined to the $914-$927 range but the metals drew closer to the upper end of the price scale ahead of the NY opening this morning as crude oil revived and gained nearly $2 (to $132.77) and as the US dollar once again approached the 72 mark on the index, declining .10 on the day. Physical buyers were scarce confirmed by fresh reports from Karachi which indicated all-time low gold demand for the first 20 days of this month amid current values.
New York spot trading opened this final session of the week with a $5.30 gain quoted at $925.70 per ounce and aside from possible surprises in the oil pits the trade has little else to focus on in today's economic calendar (weekly leading indicator figures) and as participants square books prior to the long weekend. Silver rose 22 cents to $18.18 and platinum climbed $22 to $2186 per ounce. Palladium fell $2 to $453 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. 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
Perhaps a day of respite is in the cards for this Friday, but let's see how various pits end up squaring position books before heading to the filling station with the wad of cash that is required to help us reach our favorite fishing spot some 430 km away...