1>>>INFLATION Measure

What is inflation?
Inflation rate of a country is the rate at which prices of goods and services increase in its economy. It is an indication of
the rise in the general level of prices over time. Since its practically impossible to find out the average change in prices of
all the goods and services traded in an economy (which would give comprehensive inflation rate) due to the sheer number
of goods and services present, a sample set or a basket of goods and services is used to get an indicative figure of the
change in prices, which we call the inflation rate.
Mathematically, inflation or inflation rate is calculated as the percentage rate of change of a certain price index. The price
indices widely used for this are Consumer Price Index (adopted by countries such as USA, UK, Japan and China) and
Wholesale Price Index (adopted by countries such as India).

WPI represents the price of goods at a wholesale stage i.e. goods that are sold in bulk and traded between organizations
instead of consumers.
Definition: Wholesale Price Index (WPI) represents the price of goods at a wholesale stage i.e. goods that are sold in bulk
and traded between organizations instead of consumers. WPI is used as a measure of inflation in some economies.
How is inflation rate calculated?
If we have the WPI values of two time zones, say, beginning and end of year, the inflation rate for the year will be,
(WPI of end of year WPI of beginning of year)/WPI of beginning of year x 100
For example, WPI on Jan 1st 1980 is 106.09 and WPI of Jan 1st 1981 is 109.72 then inflation rate for the year 1981 is,
(109.72 106.09)/106.09 x 100 = 3.42% and we say the inflation rate for the year 1981 is 3.42%.

In this way individual WPI values for the remaining 434 commodities are calculated and then the weighted average of
individual WPI figures are found out to arrive at the overall Wholesale Price Index. Commodities are given weightage
depending upon its influence in the economy.
The major criticism for this index is that 'the general public does not buy at the wholesale level', thus WPI does not give the actual
feeling of the amount of pressure borne by the general public. However, the increase in wholesale prices does affect the retail prices
and as such give some feel of the consumer prices.

http://business.inquirer.net/178899/how-does-inflation-affect-the-stock-market#main_article
Investing in stocks can be a good hedge against inflation over the long term. Stocks are one of the few assets that you can
rely on when it comes to beating inflation. The other asset that you can consider is real estate which tracks inflation
through value appreciation. However, this is not as liquid as stocks.
Rising inflation can cause the most damage in fixed income securities. If you have put your money in bonds and longterm commercial papers, you are most likely going to lose in real terms if the interest rate per annum that you agreed to
receive is less than the current inflation of 4.9 percent. If inflation goes up further, the higher the increase, the larger your
losses will be in real terms.

2>>>GOLD
If the future expectations of the global economy are bad, people run to the safety of the US Dollar and Gold and sell
stocks. The price of gold rises, the value of dollar rises against the Rupee. FII's and FDI's pull money out of the Indian
stock market causing it to decline.
When the price of dollar rises, oil prices increase for India. This puts strain on the economy as inflation increases with
energy costs. Because of high inflation people invest more in gold and less in stocks causing the stock markets to fall.
There are many other permutations of how one would react to the other but as a rule of thumb,

Gold and oil are positively related. A rise in oil prices is an indication of bad times and gold prices rise
correspondingly.
Gold and stocks are negatively correlated. If stocks go up, gold goes down and vice versa.

http://seekingalpha.com/article/1940251-an-explanation-for-the-divergent-prices-of-gold-and-stocks?page=2#