In the late 1990s, when gold languished below $300 (U.S.) an ounce, gold enthusiasts would tell investors to keep a little of the precious metal in their back pockets - "just in case." The idea was relatively sound: Gold was unpopular and stocks were incredibly popular, so if something went wrong with the market gold would rise and prove its value as a hedge.
The strategy worked well during the stock market bust in 2000, when the S&P 500 cratered and gold built the foundation to what would become an extraordinary run over the next decade.
But it is becoming harder to see gold's hedging abilities these days, with stocks and gold now moving more or less in tandem. If you overlap the price of gold with the S&P 500 over the past 12 months, the performance similarities are striking.
The two assets moved in lockstep, then diverged slightly at the start of 2011, and have since closed the gap in spring trading. The result: The S&P 500 has returned 20.6 per cent over the past 12 months, while gold has risen only slightly more, at 24.8 per cent.
To be sure, gold has been a force of stability on some of the darker days for the stock market over the past year. When the S&P 500 fell 2.3 per cent on June 1, gold rose 0.3 per cent. And when the index fell 2.8 per cent last August 11, gold fell just 0.5 per cent.
Despite these one-day divergences, though, the overall trend toward togetherness is hard to ignore.
Gold's relationship with Canada's S&P/TSX composite index is just as close. Again, the two moved together before diverging briefly earlier in the year. Over the past month, though, they have embraced again, resulting in similar 12-month returns: 15.2 per cent for the index and 17.5 per cent for gold when its gains are translated into Canadian dollars.
Gold enthusiasts believe that gold will score plenty more gains in the years ahead, as investors continue to fret over the financial health of the United States and other developed economies. But if the past 12 months are any indication, gold is perhaps closer linked to the stock market than these bearish types would like to believe.
Meanwhile, anyone looking for uncorrelated assets should turn their gaze toward gold producers these days, which seem to be divorced from gold itself. The producers, as represented by the 16-member NYSE Arca Gold BUGS index, have been far more volatile than the underlying commodity, and overall returns have been very different as well. Over the past 12 months, the index has risen just 13.4 per cent - or almost half the gain for gold.