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A freshly produced bar of gold is cleaned at the Boroo gold mine in Boroo, about 150 km (93 miles) north of the Mongolian capital of Ulan Bator in this July 5, 2006 file photo. Boroo, owned by Canada's Centerra Gold Inc. produced 9 tonnes of gold last year -- about half of total production in the Central Asian nation of deserts and grasslands.NIR ELIAS/Reuters

Is gold still a good hedge? A lot of investors think of gold as a way to offset the risks of a stock market setback. That is, if the stock market declines, gold should do okay. But this relationship has broken down recently, with gold and stocks tending to move in tandem: When stocks dive on a particular day, gold tends to fall too. This has posed a serious challenge to the notion that gold is a haven from market volatility.

The World Gold Council, a pro-gold organization whose members are 24 leading gold mining companies, acknowledged gold's apparent close relationship with stocks in its quarterly report on Wednesday. However, it believes that the longer-term is a far more useful measure – and over the past 37 years, gold has shown a negative correlation with stocks. That is, it zigs when stocks zag.

As the report argues: "Put simply, gold has not had a significant relationship with equities. The price of gold is driven by a unique set of factors, often quite at odds with those driving other assets, particularly equities. Infrequently these factors coincide, and also equally infrequently, equities and gold will move in the same direction, but not for the same reasons."

The recent apparent correlation between gold and stocks, they say, is due to the U.S. dollar: Stocks recently have tended to fall when the U.S. dollar is rising, and vice versa – and gold tends to move in the opposite direction to the dollar.

"While the short-term daily correlation between gold and the S&P 500 might indicate a slightly positive correlation in the recent period, long term correlations remain at or close to zero," the WGC said in its report. "In other words, the inclusion of the U.S. dollar as an explanatory variable to gold prices makes the S&P 500 beta insignificant."

Meanwhile, perhaps the WGC should look at the correlation between gold and gold producers, which has shown a stunning breakdown. Over the past 12 months, to the end of March, gold has risen 16.5 per cent in U.S.-dollar terms. But the 16-member NYSE Arca Gold Bugs index of gold producers has slumped 17.5 per cent over the same period.

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