By Melissa Pistilli
Share After a stunning rally that brought prices to an all-time intraday high of $1266.50 an ounce last week, gold flipped the script early this week. A strong start Monday teased gold bugs with a high of $1263.70 an ounce, but prices soon quickly moved south to close at $1238.60 in New York.

The flight-to-safety crowd favored the Dollar and the Yen over precious metals and a stronger greenback placed further pressure on gold. Profit-taking off record highs and end of quarter selling also pushed prices down as investors traded gold for cash to make up for losses elsewhere.

The market’s initial reaction to the G-20 meeting in Toronto sent some investors to safe-haven gold, but pessimistic sentiments quickly faded. “We had built some risk premium into the market in front of the G-20 meeting,” said Sterling Smith, an analyst with Country Hedging. “The market is now shaving some of that.”

The precious metal looked to be extending its losses Tuesday morning as the dollar climbed and equities across the board took a hit after a serious correction in a leading indicator for China’s economy hit the wires. April growth in the Asian nation was earlier reported at 1.7 percent, which turned about to be a calculation error. A revision to 0.3 percent had a big impact on the markets this morning, especially in Asian and Europe.

However, after slinking as low as $1226.40 an ounce on the COMEX, the price of gold began to pare its losses by mid-day rising $20 an ounce in a matter of a few hours. The shiny metal overcame pressure from a stronger greenback to regain its safe haven allure as US equities continued to dive on depressingly weak consumer confidence and US housing market reports. Gold managed to hang on to most of its afternoon gains to close at $1241.80 an ounce in New York.

Whether gold can sustain price levels over $1250 an ounce in the short-term is debatable. “With the fear effect of concerns over developed-country debt and emerging-markets monetary tightening fading and a lack of fresh impetus, prices appear to lack the momentum to stay above $1,250,” said a report by Barclays Capital.

But medium to long-term forecasts remain bullish. Bayram Dincer, analyst at LGT Capital Management, puts prices at $1300 an ounce before September. Societe Generale sees the yellow metal reaching $1430 an ounce in the third quarter.

Gold Bubble Believable or Bunk?
Many bullish analysts point to plenty of support for higher prices coming from safe-haven concerns such as a stressed economic climate, ongoing sovereign debt problems and the threat of inflation.

It’s these concerns, rather than pure supply/demand fundamentals, that have brought prices 13 percent higher in 2010, which gives many an eternal pessimist (some may call them realists) reason to warn the gold market may be experiencing a bubble waiting to burst.

Michael Pascoe had an interesting piece on this touchy subject Monday in The Sidney Morning Herald. He dissects the latest Gold Bubble argument put forth by Rory Robertson, interest rate strategist at Macquarie Bank.

Pascoe, like Robertson, doesn’t try to cover his disdain for the “gold bug faithful,” which he describes as “a broad church that ranges from the inflation-fearful to the Armageddon brigade forecasting the end of civilisation as we know it.” His words, not mine. Don’t shoot the messenger.

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