The cuts would track a backwardation between prompt and third month Dubai prices that narrowed by 70 cents a barrel in July versus June.
However, Bharti Airtel, Asian Paint, Tata Motors and Infosys gained in the morning trade.
The Sensex plunged 786.94 points intra-day to day’s low of 36,694.18 after a weak start.
Sensex, Nifty crack below 37K and 11K marks
Usually gold is available for a premium or discount of $2 to $3 an ounce depending upon the dynamic supply-demand situation.
The broader NSE Nifty dropped 138 points or 1.24 per cent to end at 10,980.00.
Gold is trading at Rs 41,530 per kg in the national capital as caution prevailed in view of weak global cues.
The NSE Nifty dived 222.80 points to 10,889.55, led by a sharp sell-off in auto, banks, and metal stocks.
Rupee is trading at 69.20 against US dollar amid unabated foreign fund outflows and rising crude oil prices.
The 30-share index was trading 205.69 points or 0.55 per cent lower at 37,275.43.