By Ruma Dubey

Right now, equities are down, oil is slumping every day, realty is down. The only price moving up is that of gold. And this is normal – when everything else is down, it indicates increased uncertainty and that means gold becomes the safe haven. So the very same yellow metal which was shunned by everyone and analysts were talking big about price hitting new lows, is now suddenly back in the limelight.

Today, gold hit a new 12-week high at $1243.60, which is a new high after mid-October.  And the blame finger is pointed at only one – consistently falling crude oil prices. Brent crude has fallen to the lowest level in almost six years.

There is an indelible relationship between the prices of gold and oil. When oil falls, gold will rise and when oil rises, gold will fall. And this is not just a coincidence; there is a very logical reasoning to this correlation between the two.  Usually gold is used a hedge against inflation which is spurred by oil – when oil prices rise, gold prices also rise. But the anomaly here is that when oil prices fall, along with equity, there is a need for investors to run to something rock solid, which will give it the cushion from the fall. And that is where gold comes in. So when oil slumps, the need to use the yellow metal as a hedge comes down but becomes a tool for safer haven – demand for gold is more out of a sense of security though demand as a hedging tool falls.

But there is another school of thought – if oil price rises, gold price also rises as rising oil price indicates inflation, which in turn leads to increase in price of almost all commodities. Yet, this is again not really a waterproof correlation as early last year, even when oil was over $100/barrel, gold was down. Thus one cannot really say that oil prices and gold always move either in tandem or inversely. Gold is one commodity which is driven purely by sentiments – the moment there is uncertainty, global turmoil, fear of economies hurting or slowing, gold immediately shoots up. Gold is always an anchor against stormy weather, the go-to metal when the risk is high.

Currently, Europe is causing some worry and falling oil price, which has been around for some time now is only adding to the pressure.  This spike up in gold price has led to many analysts saying that gold prices will climb higher and consolidate at around $1238/ounce levels. But Barclays has come out with a report stating that it expects gold prices to test new lows in 2015 as the yellow metal battles with a strengthening dollar and the first interest rate hike in nine years by the U.S. Federal Reserve.  It has given a forecast of average price of $1,170 per ounce, down from its earlier view of $1,180. Going further on the bearish outlook, it expects 2016 average price to be around $1150/ounce.

For now, we can only sit and watch – the slump of oil and rise of gold. And equities? Well, it will be driven by essentially three events – the European Central Bank’s meet on 22^nd Jan where it is widely expected that it will announce a huge bond-buying program. Then there is the Greek election on 25^th Jan and on the 29^th of Jan, there is the all-important Fed Reserve meet where we could get some indication about the imminent interest rate hike. Global events apart, Indian markets will be about earnings and of course the RBI – will the rate hike come sooner than expected?