Gold at 30-year High vs Oil

One ounce of gold bought nearly 40 barrels of oil this month.

Gold's resilience in the face of a crashing oil price has shown the metal's flair for adapting to circumstance, appealing anew to investors seeking a safe haven from financial market volatility even as they shy away from other commodities.

With gold holding firm as oil prices tumbled to their lowest since 2003 this month, an ounce of bullion reached the equivalent in price of nearly 40 barrels of Brent crude oil -- more than at any time since 1986.

The correlation between the two assets has been intermittent over the last decade. Gains in gold were linked to fears that ultra-loose monetary policy would fuel inflation, but also to dollar weakness and strong growth in China, factors that boosted commodities as a whole.

Industrial raw materials have since fallen out of favour with investors on fears over slowing growth, particularly in China, but concerns that could spill over into the wider economy mean gold is currently outperforming its peers.

"The fact that oil and other commodities have collapsed means the economy is in trouble, which should be positive for gold," Societe Generale (SGE.SG) analyst Robin Bhar said. "I suspect that because there is uncertainty, gold will play a role as an insurance policy."

Gold prices have climbed 5 percent this month, just as Brent crude plunged by a quarter, after losing more than 30 percent of its value last year and creating a downdraught that has taken most commodities with it.

While gold has traditionally been seen as a hedge against oil-led inflation, the divergence between the two assets suggests this factor has been superseded for investors by fears about the implications of the oil rout for growth, and for the path of U.S. monetary tightening from the Federal Reserve.

"Oil weakness has weakened stocks, it has triggered risk-off sentiment, and has triggered demand for bonds," Ole Hansen, head of commodity research at Saxo Bank, said. "We've seen yields coming down, and that's potentially forcing the hand of the Fed."

"Gold was sold off on the expectation that we were going to see rates higher, the dollar higher. Those have both been called into question."

That does not necessarily mean gold will rebound. A poll conducted by Reuters this month showed prices are still forecast to be weak this year, in part due to falling inflation expectations.

However, it is expected to maintain its advantage over the likes of oil, before finding its feel next year as the markets acclimatise to marginally higher rates, risk aversion picks up, and the effects of ultra-loose monetary policy become apparent.

"We envisage that a bottom is firmly in place for gold," Ava Trade's chief market analyst Naeem Aslam said. "It could be the best performing commodity for this year."

Reporting by Jan Harvey