Platinum jumped to a three-month high on Thursday, passing the price of gold for the second session in a row after upbeat U.S. economic data boosted optimism about demand for industrial commodities such as platinum, a vital material for automakers.
Palladium also rallied, hitting 16-month highs, as investors in platinum group metals (PGMs) remained wary about supply shortages after miner Amplats announced this week an overhaul that could cut 400,000 ounces of platinum production in a year.
"There is a significant chance of platinum moving back to a normal type of premium of at least $100 (against gold)," INTL Commodities CEO Jeff Rhodes said.
"Potential for further supply shocks in the PGMs does have all the ingredients for an interesting few weeks in terms of prices," Rhodes added.
The rally came as upbeat U.S. housing and jobs data sparked a rise in U.S. stocks to five-year highs and cut early losses in the dollar, boosting appetite for risk assets, particularly industrial commodities such as PGMs. The Thomson Reuters-Jefferies CRB index, which tracks 19 commodities, hit a 2-week high.
Platinum and palladium are integral for reducing toxic emissions from cars.
Analysts say explosive growth in China's automobile industry, and a November report from PGM specialist and refiner Johnson Matthey forecasting the biggest palladium deficit in 12 years, had combined to create the unusual price action.
Some caution that the rally, driven largely by buying from hedge funds and money managers, might have gone too far.
Thursday's run-up came in spite of news that miners at Amplats, or Anglo American Platinum, had returned to work after an illegal walkout to protest against the world's top platinum producer's plan to cut 14,000 jobs, close two mines and sell another.
Since the year began, platinum, which is also popular in jewelry making, has already risen about 10 percent in price and palladium about 8 percent. Thomson Reuters data shows the Relative Strength Index for both metals at above 60, technically putting them in overbought territory.
The U.S. EFTS Platinum Trust has also posted an increase in its platinum holdings so far in January. Many still think prices will push higher.
"The two markets are up nicely, but it's not like the move has been parabolic. We do think PGMs have more to go," said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a broker-dealer which manages $54 billion in assets.
Gold moved back above its 200-day moving average this week, a key chart level, after falling below that level in early January when minutes of a Federal Reserve policy meeting showed concern about the scope of U.S. monetary easing.
(Read More: Gold Can Still break Through $2,000: Analysts)
"We are still in a period of trial, trying to rebuild the confidence into the gold market," Saxo Bank vice president Ole Hansen said. "We have not breached any critical levels yet to the upside, which could signal that further strength could be coming."
Hansen added: "While we still stay above the 200-day moving average around $1,662, there is a lot of nervousness in the market. We've seen big swings at the start of January, we spent the last week trying to recover from that."
Dealers said physical buying interest for gold has ebbed, after a robust start to the year.
"What we did see in the gold dips was strong physical demand across the Asian world, including Thailand and India, but since (then), the physical market has definitely slowed," INTL's Rhodes said.
Supply concerns from major producer South Africa also continued to drive prices higher, after miner announced an overhaul that it said could cost it 400,000 ounces of platinum production a year.
Spot platinum advanced by nearly one percent to trade below $1,698, closing in on a three-month high of $1,699.50 hit on Tuesday. Spot palladium was up about 0.7 percent below $726 an ounce, setting a new 16 month high.
Silver gained nearly one percent, trading above $31.