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.

With the 8:30 a.m. EST release of new Federal Reserve Chairwoman Janet Yellen's prepared remarks for the House Financial Services Committee, U.S. stocks opened higher on Tuesday; the benchmark S&P 500 and the narrower Dow Jones Industrial Average (^DJI -0.15%) were up 0.30% and 0.38%, respectively, at 10:15 a.m. EST. Meanwhile, the gold market appeared to be sending a less benevolent signal, as the precious metal hit a three-month high ahead of the release; U.S. gold futures were up for a fifth consecutive day -- the longest streak since August 2012. The most popular gold exchange-traded product, the SPDR Gold Shares (GLD 1.30%), was up 0.6% at 10:15 a.m. EST.

Perhaps Yellen would be relieved to learn that today's rise in the price of gold looks to be unrelated to her appearance before Congress, but rather connected to 500 tons of "missing" Chinese gold -- just the sort of intrigue that excites many gold enthusiasts. Here are the facts:

  • On Monday, the China Gold Association published data indicating gold demand in the nation shot up 41% last year to 1,176 tons, meaning China almost certainly overtook India as the world's largest consumer of the yellow metal.
  • However, last year's net imports of gold through Hong Kong of 1,158 tons (nearly double the amount from 2012) essentially covers the consumption demand from individuals. That leaves unexplained the destination of the 428 tons that were mined domestically -- making China the world's largest producer and consumer -- and the amount of gold imported through Shanghai, which has not yet been published.

The speculation among market participants is that China's central bank, the People's Bank of China (PBOC), hoovered up last year's domestic production. To date, the bank has only said that its gold reserves have remained constant at 1,054 tons since April 2009.

With several pillars of the thesis behind the "long gold" trade having broken down (notably, the risks of hyperinflation and/or financial meltdown), gold bulls are still hanging their hats on the notion that growing demand from developing nations, including from their central banks, will push the metal to new heights. As such, this morning's news, with the possibility of a substantial increase in the PBOC's gold reserves, is just the sort of thing to spark some excitement in the gold market. However, I don't think today's news or the wider prospect of increased demand from developing nations is enough to repair what is a broken trade. Don't buy gold on the rumor -- the yellow metal remains expensive.