Rhodium Trading Thoughts 15 August 2011

Given the dismal prospects for the U.S. economy under the Obama regime, investors must look elsewhere it seems for some kind of reasonable investment returns. A similar situation arises when we consider Europe. Without question that region has demonstrated that Keynesianism is a sure path to poverty. When one looks around the world, quite frankly only one region has organic real growth. Investors have a simple choice: The dismal returns from the withdrawal pains of kicking the Keynesian habit, or China.

China and India combined represent the largest car market that exists. That auto market over the next decade will be many multiples of that in North America and Europe. Rhodium will be used in the catalytic converters in some of those autos. Demand for Rhodium will, therefore, be increasingly dominated by those economies, not Western economies stagnating under the debt legacy of Keynesianism. Rhodium, therefore, offers, in addition to its rarity, an opportunity to benefit from the only real growth of the coming years.

Chart above is of the size of the Rhodium ETC, European ETF, about which we have talked before. It continues to show a nice accumulation process as investors diversify into Rhodium. This ETC, which trades in London, comes in two flavors, a U.S. dollar denominated one and Euro denominated one. Does the different denominations of the ETC have any material meaning, or impact on the returns earned? No.

An investor must first decide if owning the physical metal or owning the ETC is preferred. If the ETC is chosen, which to use depends on which currency one has. If one has Euros, buy the Euro denominated one. If one has dollars, buy the dollar denominated one. No benefit from converting one currency into another to buy the ETC.

OPINION:

Rhodium ETC should increasingly “soak up” the surplus of Rhodium, and generally tighten the market for the metal. That should benefit those investors holding Rhodium. Additionally, given the ongoing bear market in Silver, some investors should consider selling Silver and buying Rhodium. Given the currently high price risk in Gold, investors should also consider diversifying into Rhodium. As Silver investors have so painfully learned, diversification is a theory proved true by regular real world testing.

Valuations on next page.

Your Eternal Optimist;

 Ned W. Schmidt,CFA,CEBS

 Click to email me: [email protected]

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