In yesterday's commentary I posited the notion that gold may not be the inflation hedge a lot of people think it is. Here's what the modern-day gold price history looks like using average monthly prices, basis the London morning fix, compared to spot West Texas Intermediate crude oil:

Clearly, the price trend for both oil and gold is up. Both commodities have reached new nominal price highs recently. Statistically speaking, one can say gold's led the way up since the metal's regression, or trend, line is steeper than oil's. That's largely due to gold's outsized price gains in 1980.

Inflate prices to 2007 dollars by the Consumer Price Index, however, and you get a very different picture:

Regression lines now point downward. Tellingly, gold's trend line is, again, steeper than oil's, only this time the metal's leading the way down.

So, gold prices are now nominally higher than they were in 1980, but on an inflation-weighted basis, gold's been something of a bust as a store of value.

Investors can look at this phenomenon in a number of ways. A lot of gold bugs would say that gold's underpriced and is still in the early stages of an upturn that started in 2001. There's more, much more, upside to come, they say. 

Well, if this is the year that gold takes out its 1980 inflation-adjusted high, the gold bugs must have their feelers set for an average price over $1,563.

The bar's set much lower for oil. Crude averaged an inflation-adjusted price near $95 in 1980. We've been living in a $90-$100 oil world for months now. Even if prices stabilize at current levels, crude oil can cruise through 2008 to take out its historic high average price.

So, what's a better herald of inflation now: black or yellow gold? You tell me.