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

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.