With a Quiet Dow, All Eyes Are on Gold

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Tuesday's post-holiday Dow Jones Industrials (^DJI 0.21%) trading session proved to be uneventful. Throughout the day, the index stayed within a very tight range for an unusual lack of intraday volatility on the stock market, closing down 24 points. Yet even though bullion prices gave back some ground from their gains in the global gold and silver markets on Monday, many stock market skeptics believe that gold could prove to be a solid alternative for 2014.

The first thing to remember is that while bullion exchange-traded funds and mining stocks didn't trade yesterday, bullion did. So even though spot gold was down today, the SPDR Gold Shares (GLD -0.09%) were actually up 0.2%. Meanwhile, silver's gain was magnified, with the iShares Silver Trust's (SLV -2.35%) 2.3% rise reflecting two days of strong results.

Source: Kitco. As of 4 p.m. EST.

What you need to know about the World Gold Council report
The big news for gold investors today came from the latest annual look at the gold market from the World Gold Council. In its report, the WGC noted several potentially positive developments for the market. Jewelry-related demand for gold rose in 2013 by the largest amount in 16 years, as the plunge in bullion prices made gold jewelry much more affordable for ordinary consumers. With more than 2,200 tons of gold used, the jewelry market saw demand rise 17% from 2012 and reached its best performance since the financial crisis encouraged panicked investors to seek safe havens.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

From an investment standpoint, though, 2013 was mixed. A huge drop in demand for ETFs such as the SPDR Gold Shares was reflected in outflow of more than 880 tons. But investors bought up physical gold bars and coins at almost twice that rate, with more than 1,650 tons representing an all-time record for physical bullion. Meanwhile, gold supplies fell 2%, and central-bank net purchases slowed their pace despite a fourth straight year of bankers buying more gold than they sold worldwide.

Meanwhile, among precious-metals miners, fundamentals and earnings-related news are playing a vital role. For instance, Coeur Mining (CDE -3.35%) jumped 7% after the company said that its proven and probable silver reserves jumped 16% and gold reserves rose 12% in 2013. Measured and indicated silver resources jumped 27% as well, with even larger jumps in inferred resources in both silver and gold. With earnings due out later this week, Coeur is putting itself in position to benefit greatly if precious metals can rebound further. More generally, the Global X Silver Miners ETF (SIL -2.60%) posted a 1.2% gain today, outpacing its gold-miner counterpart, which had a more modest rise.

Even if the bull market is back in place, gold investors shouldn't expect straight-up movement in precious-metals prices. Instead, you'll have to endure the same stepwise motion that has always characterized bull markets. Still, the overwhelmingly negative sentiment in gold and silver is clearly gone, and investors will have to stay on guard to make sure that the market doesn't get too frothy too quickly.