Platinum has been on a tear in recent months. The metal just hit a decade-plus high. And it has everything to do with... gold?
In a surprising twist, soaring gold prices have caused a spike in platinum demand. That, in turn, has caused a spike in platinum prices.
The metal is up nearly 50% this year... roughly double the return of gold. And the rally included a rare 10-week stretch of profits.
The massive surge has a clear explanation. But according to history, the outcome from here is uncertain... with either big gains or big losses on the horizon.
Let me explain...
Platinum's recent rise is an interesting phenomenon.
The metal soared 33% over a recent 10-week stretch. That's one of the largest 10-week rallies in its history. And it happened because of China's new gold problem...
You see, as gold prices soar, Chinese jewelers are turning to platinum. It's more affordable after gold's massive surge over the past few years.
The country has been importing huge amounts of platinum in recent months. This new and unexpected uptick in demand has helped catapult prices higher.
Again, platinum jumped 33% in just 10 weeks. Take a look...
Platinum was trading sideways for most of the past year. Then, beginning in early April, it began to soar.
This kind of rally is far from common. There have only been three other periods where platinum saw similar rallies over 10 weeks. And as the table below shows, what happened next was a major split...
Usually, we'd expect a big short-term rally to indicate a powerful uptrend. And when a powerful uptrend is in place, the gains tend to keep going.
That can be true for platinum. But as our first case shows, this kind of major short-term rally is sometimes unsustainable... And it can collapse catastrophically.
In 2008, the rally continued in the short term. The metal was up 10% over the next three months. Then, the bottom dropped out... with a one-year loss of 47%.
The other two past instances were much better. The strong trend did hold up in those cases. Platinum kept soaring, rallying 40%-plus in a year both times.
So, what can we expect today? History isn't clear this time. But gold's big rally is driving this new demand for platinum... And as I explained yesterday, higher gold prices are still likely from here.
That means this trend should continue for platinum. And if that's the case, a major crash isn't likely. Instead, the massive rally we just saw could be only the beginning, with much higher platinum prices on the way.
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