We often read about gold and silver and their potential in connection with slowing growth of global economy and upcoming recession. Investors focus its attention regarding investments in precious metals now onto platinum and palladium whose price is significantly increasing as well. However, the true pioneer of price increase among precious metals is rhodium, a precious metal whose value exceeded 10.000 USD during the last crisis and surpassed all of the above-mentioned commodities.
But how to invest in a precious metal which none of us has ever seen and some have not even heard about it yet? In the following text, I will be focusing not only on rhodium, but also on the specific steps that can be performed by a retail investor if he is willing to invest in such metal or just to speculate on price increase or decrease of such commodity in the market.
In 2004, the value of rhodium was moving around 500 USD for 1 ounce, in 2008 it was almost twenty times more. The similar, increase by several times, can also be seen nowadays – in the time period when people talk again about upcoming economic recession and potential beginning of a financial crisis. While the price was moving around 600 USD for 1 ounce four years ago, in September 2018, the price was already more than 2400 USD for ounce.
Currently the price of this precious metal is moving around 6.000 USD for 1 ounce, according to the information by Infomine.com. Within a year, the price increased by 150 percent in comparison to the last level.
It’s not just the economic situation that helps the price growth, but also the fact that rhodium, similarly to platinum, is used in catalysators for trucks and private cars.
According to Gulf Brokers, currently nothing indicates that the trend of price growth should turn around. Investors should, nevertheless, keep in mind that the price of rhodium is very volatile. Those that are more experienced should certainly consider an investment in this precious metal which could be an interesting expansion in their portfolios. However, it is also needed to think of the possible risks that arise from such investment.
Investors can diversify their portfolio by investing in rhodium for example through buying futures contracts (buying or selling a particular commodity volume at a pre-agreed price at a specified agreed time in the future) and CFD contracts (i.e. contracts on price difference, the client does not physically buy the asset, but profits from such trade).
In practice, this means that you have to select a trustworthy broker, where you can create trading account. Once the documentation is approved, the client can start trading. Before that, it is necessary to follow instructions and download the trading platform from broker’s website; your trading commands will be realized through the platform. Currently the most popular trading platform is MetaTrader 5. When a client opens the platform after downloading it, he or she then selects a specific instrument from the contract-for-difference (CFD) offer, in this case rhodium, and submits the required volume he wants to buy. The amount is shown in business units so-called lots (1 lot – represents the specific trade volume, for example 100 troy ounces, but that may be very different among trading instruments and merchants). The client picks for example 0.1 lot and when he decides to buy such instrument, he clicks on BUY button in the platform and buys the required volume, for instance for 5.000 USD (he never trades with all your available capital). There is an advantage regarding CFD contracts, it’s possible to speculate on prices reduction of a particular instrument, in this case rhodium, the client therefore clicks on a button, that changes into “SELL” instead of a “BUY” button instead.
When trading CFDs, it is important to remember that you are not an owner of the asset itself, in this case rhodium, but you only speculate on its growth or decline.
The advantage, but also a risk, is that trading with CFD is possible using leverage, which means that the client may trade with a capital that is larger than what he owns. For example, a trader with a capital of 10.000 EUR may trade using a leverage of 1:10 which means a maximal volume of 100.000 EUR. Using the leverage may increase profits, but in case loss, it will be multiplied as well.
It is possible to buy rhodium physically from providers as a long-term investment; rhodium may be bought in the form of bricks in various sizes of 1 gram, 1 ounce or even 1 kilogram (depending on the seller’s offer).
Syam KP, GulfBrokers