Fool's Gold Report: As Metals Climb, Why Aren't Miners Soaring?

The precious-metals markets have been relatively quiet in recent days, as attention has focused on the stock market and its record highs. But on Wednesday, a combination of news about supply of precious metals as well as geopolitical risk and signs of potential inflationary pressures in the U.S. all helped to send gold above the $1,300 level and other metals jumping even further on a percentage basis. iShares Silver Trust (SLV 0.04%) was the most encouraging performer of the day, rising 1.4% on reports of high demand for physical silver. Still, even with those bullish signs, mining-stock ETF Market Vectors Gold Miners ETF (GDX 0.60%) and individual stocks Silver Wheaton (WPM 0.04%) and Newmont Mining (NEM -0.03%) had limited responses to the change in conditions.

Why silver should soar
News from the Silver Institute today showed a big boost in demand for silver during 2013, as investors and industrial users boosted their use of the white metal for various purposes. Retail investment in physical bars and coins dominated the market, with a rise of 76% from the previous year's levels. In addition, though, the use of silver in jewelry and in the production of silverware also helped contribute to overall demand. As the price of silver came down, consumers were in a better position to buy products containing silver, and so they got much more popular as a result.

By contrast, silver supplies fell, with much less scrap silver appearing in the market. Low prices deterred many owners of silver scrap from offering it in the market, especially as the iShares Silver Trust fell roughly 35% in 2013. Even with demand at an all-time high, it wasn't enough to push silver prices too much higher from their recent lows.

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

Yet in light of the positive news on the supply and demand front, it's discouraging to see a relative lack of interest from silver mining stocks today. Even as bullion prices and the bullion-tracking iShares Silver Trust both rose, most silver-related stocks had muted reactions. Silver Wheaton was up just half a percent, even though its business model gives it leveraged exposure to rises in silver prices. The lack of response throughout the silver-mining complex indicates a lack of confidence in the underlying move in silver bullion.

The same subdued mood appeared to prevail in the gold market as well, with Market Vectors Gold Miners ETF up just 1.2%. Even with today's gains, more gold analysts are convinced that we'll have to see a prolonged drop to even further levels in gold prices before the market can hit bottom. Newmont Mining even dropped on the day, with the company facing ongoing concerns about whether it will have to curtail copper production in Indonesia in light of export restrictions there.

Overall, mining-stock investors have gotten burned by false turnarounds so often that they doubt the precious metals markets. Until that sentiment changes, it'll be hard for the gold market to get traction.

How metals moved today
On Wednesday, gold performed well, as June gold futures settled up $11.10 per ounce to $1,305.90. July silver futures posted an impressive $0.23 per ounce gain to $19.775, and platinum-group metals soared as strikes in South Africa start to reach a critical point from a supply and demand perspective.

Source: Kitco. As of 4:15 p.m.

Watch to see if gold can hold onto its climb above $1,300. With so many disappointments this year, gold investors don't want to be vulnerable to false hope, and that could hold back the market unless other catalysts for an upward move appear -- especially among hard-hit mining stocks.