Dollar breakdown would probably not concern the Fed...

"As far as we can tell, the current gold rally is being driven primarily by fears that the debt crisis will lead to a breakdown in the Dollar Index and secondarily by the contraction of liquidity. And unlike surging inflation fears, a breakdown in the Dollar Index would probably not concern the Fed at this time. We therefore don't see the Fed as the main threat to the gold market's short-term upside prospects. The main threat is that the Dollar Index fails to do what just about everyone is expecting it to do and, instead, begins to trend upward."

~Steve Saville, The Speculative Investor

"But what of the U.S. dollar? After all, once the printing presses fire up to full speed, and the Fed Funds rate begins to ratchet steadily downward, won’t the Chinese and other non-U.S. holders of our 6 trillion dollars show their displeasure by ridding themselves of the things, driving the dollar down even further? Surely that can’t be allowed. Can it? In a call with long-time friend Clyde Harrison, one of the most seasoned and sharpest players on the commodities scene (he invented the Rogers International Commodities Index Fund), he quipped to the effect of, "We’re in an election cycle and the foreign holders of U.S. dollars don’t vote. By contrast, the U.S. voting public is up to its neck in debt. When push comes to shove, the dollar will be sacrificed. [...] And central banks? Won’t they try to keep gold down on the farm? After all, if it starts to take off, as we continue to feel is inevitable, won’t that risk expose the fact that the emperor’s clothes are made of paper that fall to pieces in the first moderately heavy rain? Yes. And so we will expect to see more announcements of central bank sales. But the impact this trick has on the price of gold will be diluted with each new announcement. In time, announcements of further sales will be met with cries of legitimate outrage by citizens concerned their central bankers are trading away their only tangible holdings. The dollar is headed toward the sacrificial altar, with a knife made of gold. Sooner or later, the central bankers will have to throw in the towel and just let gold run. These are not ordinary times and the outcome likely won’t be ordinary either." ~The Internationl Speculator, 9/11 2007