While many investors clamour to buy gold and silver, there is a little-known precious metal that may deserve a look: rhodium.
Widely used in automobile pollution-control devices, rhodium holds the distinction of being the rarest and most expensive of the precious metals, thanks to a minuscule level of production and a sky-high price of $1,915 (U.S.) an ounce. That's pretty cheap for rhodium, by the way. Three years ago, it traded for about $10,000 an ounce.
Right now, rhodium has bullish demand and supply trends, making for an intriguing investment case. And for the first time, it's relatively easy to play the wild swings in the metal.
A new exchange-listed vehicle for rhodium began trading in London in late May, while some precious metals dealers have recently started to make it as easy to buy rhodium as gold and silver, its flashier cousins.
But be forewarned: Rhodium is one quirky investment.
There are no rhodium mines, so exposure isn't possible through a mining stock. The metal is only extracted as a trace byproduct found in other ores, such as those containing nickel and platinum, so its output doesn't change in response to the price signals driven by demand and supply, explaining its terrific volatility.
And unlike other precious metals, which are available as coins, jewellery or utilitarian bars, rhodium is fabricated into a dull, grey metallic powder sold in sealed bottles best left in storage with metal dealers.
An intact seal shows the rhodium hasn't been adulterated, but it's advisable to not break it for other reasons. It prevents people from becoming contaminated by the skin- and lung-irritating dust, or having the valuable material inadvertently blow away. "You don't take this puppy home," says Jon Nadler, a blogger at Kitco.com, a precious metal dealer that sells rhodium.
Ned Schmidt, editor of the Value View Gold Report, one of the few analysts who tracks rhodium, recommends precious metal investors consider diversifying into it, particularly from silver, which he considers overvalued after its sharp runup this spring. But he cautions that buying the grey dust probably won't interest diehard gold bugs preparing for financial calamity.
"This is not like gold and silver coins. This is investing in a truly rare metal. This is nothing you're going ever to take to Wal-Mart and buy food with when society collapses," Mr. Schmidt says.
At the heart of the optimistic case for rhodium is its small mine output of a mere 751,000 ounces last year, according to a recent estimate by metal dealer Johnson Matthey. Eight times more platinum is produced, while gold mine output is about 90 times larger.
There isn't much rhodium available because its concentration in the Earth's crust is about one-tenth that of either platinum and palladium. South Africa is the major producer, making future output vulnerable to the declining economics of the country's mining sector.
Demand is running at 873,000 ounces a year, but with rhodium recycled from old cars, there is currently a modest surplus of the metal. However, that surplus could soon shrink or be eliminated owing to the rapidly growing auto fleets in China and India.
Another positive factor is that some of the available rhodium could be mopped up by the exchange-traded vehicle, known as the DB Physical Rhodium ETC (exchange-traded commodity), set up by Deutsche Bank.
"We've never had in the metal an investment product like this to suck up that excess," Mr. Schmidt observes.
When Deutsche Bank issued the securities in late May, rhodium surged from $1,915 an ounce to $2,395 ounce in a week, but the price has since settled back. Each share represents ownership of one-tenth of an ounce and currently trades for about $206.
"DB set up this security to enable investors to take exposure to rhodium in a simple, transparent and secured (collateralized) manner," Deutsche Bank says.
Metal dealers are also making it easier to buy physical rhodium by narrowing the spread between the price at which they buy and sell the commodity. Kitco.com, for instance, currently has a $100-per-ounce spread, or roughly 5 per cent, a level more in line with the amount dealers charge on gold coins. Previously, the spread – the amount a buyer would need to make to break even on a purchase – ranged from $250 to $400.
Mr. Schmidt says it will probably take another 18 to 24 months for the market to become aware of rhodium's bullish fundamentals. He predicts it will then pop significantly higher as investors pour into the relatively thin market. "When these funds come in and start buying something and there is no supply elasticity, the price can just do crazy things," he said.
The most precious metal
Rhodium isn't as well known as gold or silver, but is the most precious of the precious metals, trading at a lofty $1,915 (U.S.) an ounce.
While gold is reaching record highs above $1,600 an ounce, rhodium is more than 80 per cent below its all-time high set in 2008 of around $10,000 an ounce.
Up until now, it's been difficult to invest in rhodium because it didn't have an exchange-traded vehicle, the easiest way to play a metal because it doesn't involve buying the actual commodity.
In May, Deutsche Bank set up the DB Physical Rhodium ETC, (exchange-traded commodity) which trades in London and represents an ownership of one-10th of an ounce of the metal for each share. Rhodium is used in car pollution-control devices, and its fate is tied to the global automotive industry. Bulls on the metal say surging demand for cars in India and China will drive up rhodium usage.