Rhodium is a precious metal that has seen its price skyrocket in recent years, sparking interest from investors. However, the extreme volatility also brings high risks. This article examines the investment potential and risks of rhodium.
Rhodium price is highly volatile with high investment risks
As a rare precious metal, rhodium has experienced huge price swings in recent years. The price surged from less than $1000 per ounce in 2016 to over $10,000 in 2018, then plunged back below $3000 in 2019. Such extreme volatility indicates speculations are playing a big part in price movement. For investors, this means investing in rhodium futures or physical rhodium carries high risks.
Rhodium demand looks promising in the long run despite price fluctuations
Over 80% of rhodium supply goes to autocatalysts production each year. With stricter emissions rules globally, rhodium demand for autocatalysts is likely to increase. Major rhodium consumer China also has strong motivation to reduce emissions as it upgrade industries. While the increasing hybrid and electric vehicle adoption may dent rhodium demand growth, they currently still account for a very small share. With promising long-term outlook, rhodium may bring substantial investment returns over 5-10 years despite short-term price swings.
Rhodium ETFs provide exposure with lower risks than physical rhodium
For investors interested in gaining exposure to rhodium price movements, rhodium ETFs such as the Aberdeen Standard Physical Rhodium Shares ETF (RHDM) provide a way to participate without directly trading futures contracts or owning physical bars. The ETF tracks rhodium price by holding secured physical rhodium bars in vaults, while also eliminating the hassle and risks of physically storing the metal oneself.
High rhodium prices incentivize recycling and may impact long-term supply
The extremely high rhodium price has led to increased recycling activities to recover rhodium from spent autocatalysts and other waste streams. Recycling helps supplement newly mined rhodium supply. However, if prices stay elevated for years, the resulting increase in recycling rate may cap significant further upside for prices. Investors need to monitor recycling activities and global supply-demand balance going forward.
Diversify investments across precious metals rather than concentrate in rhodium
While rhodium price may continue to rise supported by tight supply and increasing industrial demand, investors should still diversify their precious metals allocation instead of concentrating solely in rhodium. Rhodium has much higher volatility compared to gold and silver. Allocating a small portion such as 5-10% of precious metals portfolio in rhodium allows participating in rhodium price upside while reducing risks associated with its extreme swings through diversification.
Rhodium has high price volatility but its industrial demand outlook remains strong. Rhodium ETFs allow gaining exposure with lower risks. Investors should diversify across precious metals instead of concentrating solely in rhodium.