Rhodium Trading Thoughts 16 September 2011

World seems poised to move to a new level when it comes to understanding and using many metals, from Rhodium to rare earths. A reason for that is researchers now have far sophisticated tools than ever to study them. Rhodium may be one of those metals to benefit from this research. From “UIC Researchers Study Alternate Routes to Alternate Fuels” from newswise.com, 6 September,

“Ethanol as a fuel additive — often touted as a domestic solution to curbing oil imports — has been suggested by some researchers to be an expensive answer to an ongoing problem. Corn . . .is ethanol’s usual raw material here in the United States. Creating ethanol through fermentation is slow and inefficient. Acid catalyzed processes generate significant waste byproducts.”

“But a method using the rare metal rhodium as a catalyst could make ethanol production cheaper, generate less waste, and use non-food biomass such as switchgrass — rather than corn kernels — as the source material. The key is gaining a greater understanding of how rhodium can do the job at maximum efficiency, and that involves studying interactions at the atomic level between the catalyst metal and promoter elements like manganese or vanadium.”

“Two University of Illinois at Chicago researchers hope their use of a sophisticated new electron microscope will lead to new chemical production models . . .received a $300,000 grant from the National Science Foundation to create models that explain what happens when individual atoms and atom clusters of these elements combine.”

(Note: Ethanol from switchgrass is a concept similar to perpetual motion machines and alchemy.)

Chart above is of the combined size of the Rhodium ETCs, European ETFs, which trade in London. One is denominated in Euros and the other in dollars.

Given the turmoil in Europe in recent times that the size of these two investment vehicles shrank since last month should not be a surprise. Seems like everything of value is shrinking. However, over time these ETCs should remove a significant amount of Rhodium from the trading market.

OPINION:

With the ongoing bear market in Silver, now in fourth month, the argument for diversification has been again validated. Given the continued over valuation of Silver, see below, and the increasing probability, ~85%, of lower prices, Silver investors would be advised to sell Silver and place the proceeds in Rhodium. Investors with heavy exposure to Gold may be advised to add Rhodium to their portfolio for diversification and valuation reasons.

Valuations on next page.

Your Eternal Optimist;

 Ned W. Schmidt,CFA,CEBS

 Click to email me: [email protected]

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