Sponging The Rhodium Market

I can't find an Internet reference to it, but back in the 20th century, there was a huge scandal where a guy set up a company using lots of borrowed money.

It was amazingly successful, and bankers gladly gave him more credit after he showed them dozens of silos (?) he rented to store his huge inventories.

Eventually, someone checked a little further and discovered most of the silos were empty, as well as the scammer's bank accounts.

Fast forward to today's precious metals market, specifically rhodium powder, commonly called "sponge", because it tends to absorb moisture.

Rh is one of the rarer precious metals and trades over an incredible price range, reaching almost $10,000 an oz three years ago, and now down around $2500.

Enter http://www.Kitco.com which handles huge amounts of various PM. They offer a program where you can buy one, five, or ten oz vials of Rh sponge, sealed, serial numbered, and guaranteed.

You can even have them ship you these tiny bottles, but there's a catch (other than the round-trip cost of shipping, and the ease of losing or breaking small bottles holding thousand or tens of thousands of dollars worth of metal).

Their preferred choice of handling Rh is you pay for your product, and it is handled by their chosen supplier, in tamper-proof containers, and kept in storage in your name. When you decide to sell, kitco pays their buy price, you get a check, and now kitco's name goes on the bottle.

But what if you don't like the idea of some Canadian firm holding on to your precious metal, or just like to see what you spent thousands of dollars for? No problem, for a fairly pricey shipping fee, you can have it in your hot little hands.

The catch comes when you resell. You can reasonably forget CL and 99% of PM buyers whose knowledge of Rh is what's on the bottle.

You can always sell it back to kitco, but now there's a problem.

By taking possession, you've broken the chain of authority. Kitco knows and trusts their supplier/storage partner. You are a question mark.

So if you sell it back and ship it back to them, they have to carefully examine the bottle, make sure it's genuine, unopened and of the proper weight, etc.

This will cost you 5%, or $500 if you luck out and the price goes to $10,000 again.

If you're the McDuck type who likes to swim in his wealth, or just are curious what you spent your money on, you open the bottle, maybe even weigh the contents, etc.

Oops! A big no-no if you expect to sell to Kitco. Did you lose/keep some of it? Did this "sponge" soak up some weight? Have you done the PM equivalent of spitting on the burger?

Kitco will only take an opened bottle at 80% of their buy price ($8000 instead of $10,000), plus they'll hit you up with a $250 assay fee.

So you either trust Kitco and their partners to keep it for you, or you face a substantial loss on resale. And if Kitco is a bad egg (and there is no reason to think they are), they could ship you an oz of lead that you would have to have opened in front of an assayer (otherwise maybe you put it there), or tell you your Rh is in stock when in fact it isn't.