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January 28, 2020 | Rhodium Roulette

Lobo Tiggre, aka Louis James, is the founder and CEO of Louis James LLC, and the principal analyst and editor of the Independent Speculator. He researched and recommended speculative opportunities in Casey Research publications from 2004 to 2018, writing under the name “Louis James.” While with Casey Research, he learned the ins and outs of resource speculation from the legendary speculator Doug Casey. Although frequently mistaken for one, Mr. Tiggre is not a professional geologist. However, his long tutelage under world-class geologists, writers, and investors resulted in an exceptional track record. The average of the yearly gains published for the flagship Casey publication, the International Speculator, was 18.5% per year during Tiggre’s time with the publication. A fully transparent, documented, and verifiable track record is a central feature of IndependentSpeculator.com services going forward. Another key feature is that Mr. Tiggre will put his own money into the speculations he writes about, so his readers will always know he has “skin in the game” with them

Rhodium prices have spiked. It’s now the top-performing metal of the decade, and speculators are excited.

Since I—quite frankly—missed the boat on palladium in 2019, this makes it worth considering.

But before we get into this, I have to say up front that I’m not a rhodium expert.

I could read a bunch of articles like this one on Bloomberg, and then write one of my own with lots of authoritative-sounding facts and figures. But the reality is that it would be entirely dependent on the soundness of reporting by journalists.

My intention in this article is to stick to what I can see for myself and go from there.

Let’s start with what is known; rhodium has risen more than tenfold since its 2016 lows.

 

5-Year Rhodium Prices

 

Most people know that rhodium is used to plate white gold jewelry to make it look whiter. But it’s clearly not jewelry demand that’s in the driver’s seat here. Rhodium is also used in catalytic converters to control pollution from gas and diesel motors, like platinum and palladium. Much less of it is used, but it’s clearly hard to replace for those who do use it. All reports say this demand, coupled with supply constraints in South Africa—which produces 80% of the stuff—are what’s sent prices vertical.

That’s possible both because of the limited sources of the metal as well as the tiny size of the market—only about a million ounces per year. That’s great for rhodium speculators, but these same factors make the metal prone to falling off cliffs. There are so few sources of rhodium, one big new mine can radically alter the balance of supply and demand.

We’ve seen this before…

 

Rhodium Prices Since 2000

 

Several important considerations stand out on this chart.

The most obvious and alarming point is that nearly vertical cliff rhodium prices fell from in 2008. Clearly, getting out late is a huge risk in this space. At some point, someone’s going to be the “greater fool” who top-ticks this market. I don’t want it to be me.

On the other paw, previous rhodium peaks lasted years. That suggests that this one has maybe another year to go. Maybe two. If that’s right, those who buy today shouldn’t end up being the greater fools who provide exits for those who bought in earlier.

It’s also notable that the previous peak was much higher. And, due to data constraints, this long-term chart is not inflation-adjusted. This means that the previous peak was even higher in today’s dollars. That in turn suggests that the current rally could head much higher—perhaps another double from current levels—before peaking.

If I had play money and didn’t care about my public track record, I might have a go.

Unfortunately, while I’m still building up my new track record, I can’t afford to buy in to something I don’t understand well enough on my own. That would be gambling, not disciplined speculation.

I have no plans to go long rhodium at this time.

For those who do want to step up to the rhodium roulette wheel, however, there’s an easy way to play. But it’s not buying any mining stocks.

The metal is produced largely as a byproduct of platinum and palladium mines, so you could buy a big South African producer like Amplats (AMS.JO). Rhodium is a relatively small part of such stories, however, so the benefits of higher rhodium prices would be diluted. And you’d be exposed to political risk in South Africa—or Russia, if you went with Norilsk.

Fortunately, Kitco offers rhodium bullion bars and pool accounts. No, they didn’t pay me to say that. It just happens to be true.

Neither of these opportunities offers the leverage of a junior mining stock, of course. But if the metal itself might double, who needs all the risk associated with exploration—or even production?

For that matter, since rhodium can’t be called a monetary metal or a safe-haven asset, I see no point in owning bullion. Few people in the world could distinguish it from any other silvery metal. It’d be pretty hard to liquidate in case of emergency.

If I wanted to gamble with some play money—money I could honestly laugh off losing—I might skip the trip to Vegas and buy into a rhodium pool account.

That’s my take,

 

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January 28th, 2020

Posted In: Louis James

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