Gold futures settled higher by $5.60, or 0.4%, at $1,619.40 per ounce on the COMEX this afternoon amid weakness in the U.S. dollar. Gold shares initially advanced as well, but pared their gains as the broader markets later turned sharply lower. Nonetheless, the gold sector remained fractionally in positive territory, with the AMEX Gold Bugs Index (HUI) higher by 0.2% at 447.96.

Thus far in June, the price of gold has climbed by 3.6% and the HUI by 7.6%. In light of the sector’s resurgence this month, long-time gold bull Eric Sprott discussed his outlook for the yellow metal in a recent article on his firm’s site.
“We believe there has been a material change in the gold investing landscape,” Sprott contended. “The HUI, which is the Gold Bugs Index, is now up over 20% from its lows since May 16th, 2012. The slide in gold equities seems to be subsiding as a foundation for a strong move upwards is set.”

“New buyers, represented by the Chinese, central banks, Japanese pension funds and the Iranians, bought almost 140 tonnes of gold in April alone,” Sprott added. “To put this into perspective, the annual gold production is approximately 2600 tonnes. China and Russia produce around 500 tonnes of gold annually, which never makes it to the open market. This leaves about 2100 tonnes of gold production annually for the rest of the world.”

Sprott went on to say that “When buyers representing 140 tonnes of new demand enter a market which only has 175 tonnes of monthly supply, we are left wondering about two things:

1) In a balanced market, where is the source of supply to the new buyers going to come from?

2) How can a new buyer of size get into the gold market, which is already balanced, without significantly impacting the price of gold?

The answer is fairly obvious. When demand outstrips supply, prices move higher. These significant macro changes in the supplydemand dynamic of the gold market should propel the price of gold to new highs.”