The bull market in gold is still intact

The gold price rallied Wednesday morning, gaining $28.10 to $1,843.10 per ounce. Gold prices have oscillated in a wide trading band over the past two months, falling as low as $1,704 in late August and then climbing to a fresh record of $1922.20 in early September. The price of gold is currently trading in the middle of the range as investors and investment strategists debate whether the yellow metal is set to break out or break down.

Commenting on the liquidation that engulfed the gold price, Stifel Nicolaus strategist Elliot Spar wrote in a note to clients that the “crack in gold is an indication that the fast money wants out no matter what the asset is.”

Long-time gold bull Richard Russell of Dow Theory Letters, the world’s longest-running daily investment letter, offered a more positive view on the gold price. Russell wrote that “Gold has been climbing atop a 150-day moving average for the last two years. The current sharp correction has not reversed or violated the two year pattern. That tells me that the bull market in gold is still intact. Note that gold is still holding above its base at 1800.”

Despite yesterday’s rebound in the broader markets, euro zone sovereign debt issues are likely to remain at the forefront of financial concerns in the weeks ahead. Financial markets are pricing in a 98% likelihood of a Greek default, fueled most recently by speculation that Germany is preparing its banks for such a dire outcome.

Suki Mann, a strategist at Societe Generale in London, presented a particularly calamitous forecast for the euro zone if Greece in fact does default. “The contagion impact of a default will be severe, because next in the firing line will be Italy, Spain and it will take in the whole of the European banking sector too. This trio are already under intense pressure, but it will get much worse.”

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