Why $1,200 Is Important for Gold

Gold’s close above $1,200 an ounce may mean a lot more than you think.

Future prices for the metal rallied Thursday, with the August contract surging $25.20, or 2.1%, to settle at $1,202 an ounce on Comex, the highest close for a most-active contract since May 22.

To be sure, the rally was impressive. It was the largest single-session point and percentage gain in about five weeks. But the fact that prices have rallied above $1,200 is a milestone in its own right.

The rally above that level comes at a time when gold prices tend to mark a low for the year, according to Frank Holmes, chief executive and chief investment officer of U.S. Global Investors. They sometimes then climb by up to 20%, Holmes told MarketWatch.

Earlier this month, futures prices touched lows near $1,170, though dipped close to $1,150 in March at their worst this year.

Due to the “DNA of its volatility,” it would be normal for gold to move plus or minus 15% from its lows, said Holmes, who didn’t say that prices have hit a bottom.

Still, he leaned more toward the plus side for gold, saying it would be reasonable to see the metal end the year around $1,350 an ounce.

The second half of the year tends to see events that have a bigger impact on the consumption of gold in the form of gift-giving, such as the holy festival of Ramadan, the wedding season in India and Christmas, said Holmes.

The $1,200 level also marks a “sweet spot” for gold producers in terms of production costs, he said.

Market Watch

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