Sometimes it does, sometimes it doesn't. The historical correlation (monthly changes, 1973 till today) is "only" -0.35. There have been periods of dollar strength with gold gaining in value and vice versa.
I still see the same tired arguments (you can't eat gold, or run your car with it) as if you could do those things with green pieces of paper. The same people telling me that gold is in a bubble are the ones who told us the economy was just fine 3 years ago. Gold is volatile and I expect to see the 900s before I see the 1200s again. But for me it's still a long term hold. None of the problems that made me buy it in the first place have been fixed. They're all much worse. Clearly there are people who believe we can have $1.5 trillion deficits forever without any adverse affects on the value of the dollar. I think they're crazier than the gold bugs.
I agree. My prior statement was rather broad. Paper trading in gold, foreign central bank purchases, retail buying/selling of jewelry - all impact the price of gold - it's not just the strength or weakness of a currency. But when a currency gets severely debased - the price of gold in that currency always reflects that. As do other commodities, of course.
The title of your thread reminded me of this <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/S8H2FIf1oH4&hl=en_US&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/S8H2FIf1oH4&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object>