What is Rhodium and What is It Used For?

Major discoveries made by pioneers in chemistry, engineering and material science are driving platinum group metals like rhodium to become important in the global economy. New uses for rhodium in the automotive, aerospace and other industries have helped make it five times more expensive than gold. But what is rhodium and what is it used for? 

What is Rhodium and What is it Used For?

Rhodium is a lustrous, silvery-white metal and part platinum group metal along with iridium, osmium, palladium, platinum and ruthenium. Most of rhodium’s uses in the modern day involve its outstanding catalytic properties, a common feature among the platinum group metal.

A large portion of the supply of rhodium goes to the automotive industry, where it's used in catalytic converters. The rhodium catalyst is used to convert harmful exhaust gasses, especially nitrogen oxides. It's often combined with platinum or another platinum group metal catalyst. Catalytic converters are vital in reducing emissions from combustion engines and can even improve their efficiency too.

The rare metal's catalytic properties make it an important ingredient in the chemical synthesis of other important chemicals like nitric acid and acetic acid (vinegar is heavily watered-down acetic acid). Rhodium is also used in a myriad of less common cases like plating jewelry for a shiny lustrous finish.

Is Rhodium a Good Investment?

Most people don't think of rhodium when considering investing in precious metals, but it could be an even better investment than gold or silver. It's a different kind of investment than buying gold, however. It is often considered a higher risk but with a greater potential payoff.

Rhodium is much more volatile than gold, and its price is heavily affected by factors that influence its supply and demand. Gold is much more stable, and it often rises in price in times of economic and political uncertainty because of its status as a store of value and a safe-haven asset.

Rhodium could be a fantastic investment if you can build an educated investment thesis based on the factors that affect its supply and demand. For example, traders who invested in rhodium in 2020, expecting a shortfall in the supply of rhodium from closing mines and miner strikes, made out like bandits.

Rhodium was trading for just under $7,000 per ounce in May 2020. Less than a year later it nearly reached $30,000 because of supply shortages and a skyrocketing Chinese automotive sector. The following year showed the potential downside of rhodium's volatility. As supply normalized through 2021, rhodium's price crashed back to a more reasonable level of about $10,000.

Rhodium vs. Other Precious Metals

When it comes to precious metals, rhodium is often overshadowed by its more well-known counterparts — gold, silver and platinum. However, rhodium's unique volatility and demand in various industries could make it a valuable addition to your investment portfolio. Here's how rhodium stacks up against other precious metals.

Gold has long been a popular investment option because of its perceived stability and ability to act as a hedge against inflation. Gold's physical properties make it an important resource in a wide range of massive industries such as jewelry, electronics and aerospace. However, gold is much less rare than rhodium, which makes it a more stable investment. Gold prices also tend to be more sensitive to global economic conditions and geopolitical events that don't also directly affect rhodium mines or industries, which can lead to greater price fluctuations.

The second most popular precious metal for investors is silver. It's a top choice for investors looking to diversify their portfolios as well as prepare for economic turmoil, just like gold. Silver's price tends to be affected by its supply and demand more than gold, however.

Silver is widely used in the production of electronics, solar panels and medical equipment as well as jewelry, creating significant demand for the metal. As these markets grow, silver's price may become more dependent on their success than it is now.

Platinum is similar to rhodium. Like rhodium, it is used extensively in the automotive industry in catalytic converters. It is rarer than gold but much more common than rhodium so its price has generally been more stable. Platinum has other uses in major industries like jewelry and medical equipment as well.

The prices of rhodium and platinum are heavily dependent on mines in South Africa, where about 80% of the world’s supply of each metal (not including recycled metal) is produced. This is often a detriment because a crisis in the area could reverberate across the globe, driving platinum's prices to record-high levels (like it did in 1980 and again in 2008). This situation is usually bad for the economy as a whole, but investors can profit heavily from these price swings. 

How to Invest in Rhodium and Other Precious Metals

Because of rhodium’s rarity and high price tag, it isn’t always that easy to invest in. The simplest method is to buy stocks in the rhodium industry. A popular option is one of the South African mining giants: Sibanye Stillwater (NYSE: SBSW) or Anglo American Platinum ADR (OTCMKTS: ANGPY), the world’s largest producer of platinum and a top rhodium producer. Anglo American Platinum ADR is sold in over-the-counter markets, but Sibanye Stillwater is traded on the NYSE.  You can start investing in stocks with great platforms like eToro, Robinhood and Webull.

If you want to invest in precious metals directly, you can choose from a ton of great options. A few of the best precious metals dealers that offer direct delivery and IRA purchases are Advantage Gold, American Hartford Gold and Priority Gold.

Is Now a Good Time to Invest in Rhodium?

Now could be an incredible time to start investing in rhodium with enough knowledge and luck. Factors like a rising automotive market in developing countries or troubles with rhodium mines could be used to help forecast the future price of the metal and make a profitable trade. However, many potentially confounding variables could prove your thesis wrong and lose you money. One of the other precious metals may be a better investment for you.

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