Rhodium Trading Thoughts 15 March 2011

HODIUM 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.

Thus far the Japanese earthquake has not effected Rhodium prices, while irrationally sending Gold and Silver prices temporarily higher. No conceivable positive link exists between devastation in Japan and price of Silver. Positive connection with price of Gold is dubious. Rather, the need to use wealth for rebuilding of the nation could convert Japan into a net seller of precious metals, and most other forms of wealth.

While some auto plants in Japan may shutdown for a variety of reasons, globally the auto industry has excess capacity. Car production will simply shift to other plants around the world. Market share of car makers may shift. Demand for autos in some parts of Japan may shrink as consumers focus on rebuilding, but impact on global auto sales will not be meaningful.

Mining trends may have a positive impact on price of Rhodium. Rhodium is so rare that it is not produced independently. It is produced only in conjunction with the mining of other minerals, for example platinum. It is part of the platinum group of metals.

A South African reader informs us that the ratio of Rhodium to platinum in that nation’s mine production is less than that currently being utilized in the auto industry. What that means is that the auto industry is using more Rhodium relative to platinum than the mines are producing. That development should make Rhodium rarer on both a relative and absolute basis.

As can be observed in the top chart on the previous page, Rhodium continues over sold. However, the reaction of the price to concerns over a slowing of the Chinese economy has not been significant. Slowdown there will be in areas such as commercial real estate development which will have no impact on Rhodium demand. Over time, though, Chinese automobile sales will continue to expand, increasing the demand for Rhodium.

OPINION:

Rhodium continues to be an under valued precious metal, as shown in the table below. Rh is over sold, and building a long base on which to move higher. Investors continue to have an opportunity to add to Rhodium at what appears to be an attractive long-term price. Further, given the speculative bubble in the Silver market which is at risk of imploding, Silver investors have cheap money with which to buy Rhodium. Investors should sell Silver at prices above $35.50, as suggested by valuation in table below, and use the proceeds to buy Rhodium.

Your Eternal Optimist;

 Ned W. Schmidt,CFA,CEBS

 Click to email me: [email protected]

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