The euro is another story. It was trading lower Tuesday at $1.274, as speculation about more European Central Bank easing circulated.
Dennis Gartman, publisher of The Gartman Letter, said gold may not be that attractive or have much upside against the dollar but it does look promising against the euro, as it aims at the 985-euro-per-ounce level.
"A stronger dollar is always deleterious to stronger gold, but perhaps what's most important of all is you're three or four euros under a new high in gold, in euro terms," he said Tuesday morning. "I think gold is nothing more than a currency ... I don't look at it as an inflation hedge anymore."
Cross currents in the markets have been exaggerated by the fact that the Fed is moving away from quantitative easing as the European Central Bank moves closer to it. The ECB began buying covered bonds this week and was reported to be considering buying corporate debt in its battle to improve the euro zone economy and turn back deflation.
While the Fed is not close to raising interest rates yet, the prospect of its steps towards normalcy has created a wave of volatility through world financial markets. At the same time, traders look to easing by Europe's central bank and others, like the Bank of Japan.
"It's archly 'A' typical for the gold market to go up with a bond market, but in the course of the past few months, that's exactly what's going on, and conversely it's odd that gold is going up as crude oil is plummeting. The real question is how is gold going to respond to other non-dollar currencies, and it is really demonstrably strong in terms of the euro," he said.
Comments earlier Tuesday from German Finance Minister Wolfgang Schaeuble that the weaker euro was helping German exporters was seen by traders as near an endorsement for ECB easing as the German official would give.
"When Schaeuble came out and said that, it was important," said Gartman.
Europeans could use gold as a hedge against a decline in their own currency. "If we start going up through 985, you have to be long gold in euro terms. That will be a breakout. That's more important to me than gold trading at $1,250 in dollar terms.... I am ambivalent gold in dollar terms," Gartman said.
Gero said the $1,250 level is meaningful for funds, however, and could act as a magnet for buyers. He said the jewelry industry, an active buyer this time of year, may increase purchases this year, because the price is more attractive. It also may offset some of the loss of demand from India.
"The dollar looks strong not because the dollar is strong, but because the euro is sinking. Low interest rates may not support the dollar for a long time," he said.
"The Russians have been buying gold to shore up their currency, and China, because of weakness, they've been doing their own version of QE, which could help gold," he said.
—By CNBC's Patti Domm.