I thought Mish's latest was worth a full...

I thought Mish's latest was worth a full post:

http://globaleconomicanalysis.blogspot.com/2009/10/on-us-dollar-europe-sings-classic.htm

Q&A on the Dollar and Gold

I still think a significant bounce in the dollar is coming. Might I be wrong? Yes.
Are there many dollar bulls? Hardly. About 3% of traders think the dollar will bounce This is about as lopsided as it gets.
Will gold decline if the dollar advances? Good question. No one knows. Gold disconnected from the dollar in 2005 and it could easily do so again. So perhaps it does and perhaps it doesn't. Those who pretend to know are charlatans.
Do you have a target on gold? No, I don't. However, I do expect gold to rise in real terms (what it buys). There are two ways gold can rise in real terms: 1) Gold goes up vs. other assets like houses or the stock market. 2) Gold priced in dollars does not move substantially, but asset prices of stocks, houses, etc drop significantly. I expect both to happen, over time (not necessarily now).
Why do you like the dollar here? One reason is sentiment as discussed above it is a lopsided as it gets. The other pertains to how US centric most of the US is. Few know about problems elsewhere: 1) European banks are arguably in as bad a shape as US banks because of loans to Latin America and the Baltic states. 2) The love affair with China is more than overdone. China has turned on the printing presses more than the US. Please see How Will China Handle The Yuan? for details. 3) On a trade weighted basis the dollar seems undervalued vs. major components of the US dollar index. 4) Japan is a demographic basket case with shrinking exports, and huge government debt relative to GDP. The Yen is as likely to blow sky high as the dollar.
What about the US dollar longer term? Given central banker (worldwide) responses to the credit crisis, it is hard to like any major currency. That of course is a reason to like gold. Bear in mind the US dollar has already collapsed. The dollar index fell from 120 to 70 and now sits near 75. That is a serious collapse. Longer term, if the US does not get its deficits in order, more weakness may be coming. Shorter term, what fundamentals about the US dollar does everyone not understand?

Major money is made on stories buried on page 23 of the Wall Street Journal, stories that are headed to page 1. The US dollar collapsing story is on page one of economic news everywhere. Pray tell who does not know most if not all of the problems of the US dollar?

What everyone knows is often worthless, frequently harmful, and sometimes even wrong.

Fundamentally and sentimentally the dollar is due for a bounce. If and when it does, gold may or may not react, but equities are sure likely to do so, and not in a positive fashion.