With gold closing in on $800 an ounce and crude on $100 a barrel, it’s natural to assume a close connection. Gold is supposed to hold its value better than other assets when inflation is rising, so many investors consider it an inflation hedge. A glance at a weekly graph plotting New York gold futures over crude oil futures shows that while joined at the hip during last bout of commodity buying, going back they have frequently parted ways. The correlation coefficient, a statisical measure of how closely any two variables (like gold and oil) trade together, was 0.58 averaged over October, on a scale of -1.0 to 1.0. Stretched over five years, its more like 0.21, showing gold and oil are nearly independent (zero being not correlated.) Moreover, even as the gold market gets excited about breaking the 1980 records at $850 in spot and $875 for COMEX futures, in inflation-adjusted terms gold’s value is not near a record. Crude at $100 is basically its highest price ever in absolute and real terms. But gold’s inflation adjusted record was put at $2,079 an ounce by consultants GFMS Ltd. Deutsche Bank said in a report last week that gold needs to rise another 74 percent to reach an all-time high in real terms. So it looks cheap compared to oil. Why is gold lagging? It’s a good question. Part of the answer can be found in a relatively non-scary inflation picture, that defies the record rally in energy prices and many other commodities. Also, gold is not “consumed” the way other commodities are, being more of a monetary asset (and an adornment.) So demand for raw materials to feed China’s economy is less of a factor.

A more compelling chart, (and prettier, if you like symmetry) shows gold’s inverse relationship with the dollar, which makes sense since gold is considered more of a currency than oil is. When the dollar goes down, gold often goes up and visa versa. The gold/dollar correlation is -0.76 in October and -0.54 over the longer period (full negative correlation is -1.0, think opposite ends of a seesaw). If the dollar keeps falling, gold could be expected in coming months to strike a nominal, if not a real, record high.

NOTE: This post was changed to correct a labeling error in the second graph.