This debate continues to rage, and there are some convincing arguments, like the one you quote, showing that gold can be very inefficient as an inflation hedge.
Mish Shedlock has an excellent chart on his blog, from an entry a couple of years ago, showing exactly the same thing. Scroll down to the bottom - "Gold versus M3". He argues convincingly that gold does better during deflationary, than during inflationary periods.
I think, though, that sometimes we are in danger of playing too fast and loose with our definitions when we discuss this subject. Are we in deflation now, or facing inflation? It depends, of course, what you look at. If you've been invested in bank shares, or property, or equities generally, you've been experiencing a deflation in prices for a couple of years now. Meanwhile various money supply aggregates have been continuing to increase and, of course, there is a boom in the issuance of paper claims against governments (the bond markets).
All this goes to the root of the question, "What is money?" The more you delve into this question, the more complicated it becomes.
So, when putting the question of precious metals' valuation into context, I find it helps to move away from these discussions and to focus on the long-term trend in the ratio between gold (the ultimate money) and paper claims on future wealth, as measured by the major stock indices.
The long-term Dow/gold ratio chart shows, convincingly, that investors move, over very long time periods, between preferring one or the other. The chart showing the valuation of paper claims versus gold has peaked in 1929, 1965 and 2000. Gold has peaked (ie the chart has bottomed) in 1932 and 1980 and, in my view, is heading towards another price peak, probably in the next decade. Then it will be time to switch back into equities.
In the interim there may well be quite lengthy rallies in share prices against gold - the medium-term Dow-gold ratio chart shows that we are running along the bottom of the downtrend channel, and share prices could almost double in gold terms, without breaking out of the lbear market trend for equities.
However, when I look at the enormous expansion of governments' debts to fund the current bailouts, I still feel confident that gold is a much safer home for long-term savings than any of the "paper assets" - whether most equity markets, major currencies or their associated bond markets. And with declining tax revenues to back the enormous government spending commitments, there still remains a significant chance of real currency collapses in some of the "developed world " currencies, something that many emerging market residents are well familiar with. I'm not anti-dollar - sterling and the Euro have their own major problems as well.
So my pension plan remains 2/3 invested in gold and silver ETCs, with a 1/3 holding in beaten-up Japanese equities as a valuation play. No bonds or fiat currency claims for me!