Fool's Gold Report: How High Can Gold Soar?

After Monday's big stock market gains, many investors figured that gold and stocks were reestablishing the correlation that they had enjoyed in the early parts of the recovery from the financial crisis. But today, gold was able to gain even further ground despite a slight decline for the stock market, as April Comex gold futures settled up almost $5 per ounce to just below $1,343. Silver prices went the other direction, with March silver futures falling almost $0.09 per ounce to $21.98. Yet exchange-traded funds in the space tended toward losses, with bullion ETF SPDR Gold Shares (GLD 0.31%) climbing 0.2% but iShares Silver Trust (SLV 1.31%) and Market Vectors Gold Miners ETF (GDX 0.95%) falling 0.8% and 1.4% respectively.

Source: Kitco. As of 5:15 p.m. EST.

Are stocks and gold truly linked?
If you're familiar with the popular terms like the "risk-on and risk-off" trade, you've heard a lot about how stock prices and gold prices sometimes move in unison. The theory behind these terms is that when investors feel more aggressive, they buy stocks, gold, and other relatively volatile investments, while when they're more conservative, they gravitate toward bonds and cash, selling off stocks and gold.

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

But it's important to consider just how different the dynamics in the two markets have been over the past year. During 2013, stocks moved upward with hardly a break, while gold suffered its worst year of the millennium in the wake of huge price declines that crushed the gold-mining industry. As a result, it's easy to take the past two months out of context and draw false conclusions about links between gold and stocks where none necessarily exist.

Going beyond gold
Meanwhile, much different circumstances can lead to different moves from other precious metals. Silver miners all fell sharply today, with Coeur Mining (CDE 1.35%) leading the way down with a 5% drop. Some investors believe that Coeur in particular is letting itself get distracted from its core mining operations, with forays in streaming and royalty interests forcing it to consider different factors in its potential future profitability. Yet general weakness among other major silver miners, with Pan American Silver and Hecla both down about 3%, points to the possibility of just a simple correction after impressive moves for most precious-metals stocks.

Gold and silver have plenty of room to keep climbing, but a lot will depend on investors' appetite for both bullion and mining stocks. Without strength from both areas of investment, the fragile gains we've seen in 2014 could evaporate quickly.