Turning Point Of Gold: Remain Bullish

January has been a tough month for gold. From its year-end 2010 price of $1,420 an ounce to its recent low just over $1,320, gold has lost some $100 - about seven percent.

On Wednesday, the World Gold Council published its annual Gold Investment Digest for the fourth quarter and full-year 2010 with some interesting insights.

According to the World Gold Council last year’s price performance was driven by developments in key gold markets:

• China saw increased investment activity, driven in part by innovative new gold investment vehicles offering improved access to the gold market.
• Jewelry consumption rebounded in India, the world’s largest gold market.
• Globally, investors remained concerned about uncertainty in the macro-economic environment and turned to gold to hedge against weakness in the US dollar and rising inflation in many economies.

We find the last point particularly interesting, as the USD Index finished the year slightly higher than was the case in 2009. However as we have observed, after 2006 things are much more complicated than simply USD up = gold down and vice-versa.

For the past two weeks we have experienced the risks that we might all face in 2011 and mentioned the problems caused by rising food prices and the social unrest they might unleash. We didn’t expect it to happen so soon.

After Tunisia’s revolution and the ouster of its president after 23 years of rule, Egypt seems to be next on the North African crisis list. One of the main grievances of the protesters in Egypt, just as it has been in Tunisia, has been the soaring price of food in the shops. The crisis and food shortages may spread to other Arab countries and no one knows where that can lead. We only know one thing—in times of crisis and uncertainty, people turn to gold for a safe haven.

The sentiment for the USD Index is short-term bullish which also has bullish implications for gold and silver. Recall that during the past few months, the USD has been leading the precious metals and here could very well ignite a turnaround for the metals.

In this daily short-term chart, we see that once again a cyclical turning point has come into play Summing up, gold appears bullish in the short-term; however the sentiment for the medium-term is mixed. Much depends on how the resistance levels hold the next short-term rally. If they hold and stop the uptrend, then it may very well be prudent to exit a portion of one's long-term positions.