Fool's Gold Report: Metals Climb Despite Dow Recovery

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.

The stock market calmed down somewhat today, taking a breather from last week's volatility-laden sessions. But even though the Dow Jones Industrials (^DJI 0.72%) finished the day up just eight points, the precious-metals markets performed quite strongly. April gold futures closed the day session up $12.80 per ounce at $1,275.70, while March silver was up almost $0.18 per ounce to $20.12. Spot prices gave back some of those gains later in the session, but it was still enough to help both the SPDR Gold Shares (GLD 0.99%) and the iShares Silver Trust (SLV 2.75%) to gains of about 0.2%.

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

Can gold's gains last?
Much of the news pushing the gold market higher today came out of China. According to a report from the China Gold Association, gold-buying activity in the nation jumped 41% during 2013, with even greater percentage gains in demand specifically for bullion investment and jewelry. China is now the largest buyer of gold in the world, and although its per-capita consumption still trails India, its greater population will continue to make it an important driver of market prices for gold and other precious metals.

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

But even as gold has climbed to its best levels in several months, the big test for bullion prices will come with new Federal Reserve Chairwoman Janet Yellen's testimony this week before Congress, which starts tomorrow. Investors want to know whether the Fed will make any changes to the pace of its reduction of bond buying due to sluggish economic data from the U.S. in recent weeks. So far, market participants appear to anticipate a possible slowdown in the speed of tapering, as bond interest rates have fallen in 2014, reducing the opportunity cost of owning precious metals. If Yellen signals no change in the central bank's monetary policy moves, gold will face pressure and could give up its gains.

Miners keep climbing
Miners once again jumped sharply, with the Market Vectors Gold Miners ETF (GDX 2.24%) gaining another 3.3% and hitting its best levels in three months. Investors are anxiously looking forward to earnings releases from several mining stocks. NovaGold Resources (NG 2.96%) will report tomorrow, and some of the largest gold miners will issue their results later in the week.

Earnings will bring a mixed boat for just about every mining stock, as backward-looking figures will continue to look ugly in light of gold's big decline over the past year. The question is how well each company positions itself for the future, with expectations of stable or even rising gold prices ahead. For those mining companies that demonstrate their ability to control costs and take advantage of opportunities, the future could well be brighter throughout 2014.