Gold prices have usually firmed up in the midst of severe stock market corrections. Take for example September 2001 (9/11), when markets worldwide experienced turmoil.

While the Sensex tumbled by over 12 per cent for the month, gold posted a gain of over 6 per cent. Or take the case of May 17, 2004 when the Sensex registered its biggest ever single day fall of 11.4 per cent; prices of gold went up by 1.7 per cent from $373 to $380 an ounce that day.

Gold and Oil

Similarly, history suggests that gold enjoys a direct relationship with crude oil prices. Between January and July 2008, steadily climbing oil prices propelled gold higher. If a barrel of crude oil rose from $94 to a record $148 a barrel by July, gold too hit a new record.

Course correction

But as oil corrected sharply in line with the rest of the commodity pack, the relationship between oil, gold and equity began to defy the usual pattern.

In recent months, stock market corrections have not acted as a material trigger to gold prices. On the big Sensex plunge of October 24, 2008, when the Sensex fell 11 per cent, gold posted a loss of 1.5 per cent. It was also during this time that gold posted its biggest weekly loss of 12 per cent this year.

All this suggests that investors looking to switch between stocks and gold to capitalise on their relative returns may have to rework their equations quite a bit.