Gold “staged a strong comeback” following June’s decline to achieve a record high of US$2,480 per ounce mid-July, but this streak could be hampered by a number of “powerful cross currents” taking place in August, according to the World Gold Council (WGC).
In its latest monthly outlook, the WGC highlighted a strong monthly gain for the commodity, driven primarily by weaker bond yields and US dollar.
“According to our Gold Return Attribution Model, gold was propelled higher by lower 10-year Treasury yields and, to a lesser extent, a weaker US dollar,” it said.
The main negative contribution, meanwhile, came from COMEX futures, where an increase in open interest was larger than the increase in net longs.
Looking ahead, while seasonality has historically favoured gold in August, the WGC outlined three key considerations that could hurt this momentum, namely the US elections, tech earnings, and the sentiment around interest rates following the US Federal Reserve’s Jackson Hole Economic Symposium.
In the case of the US election, given much uncertainty around the policies of the two presidential candidates, with the distinction “not as clear as it has been historically”, gold is likely to benefit more from this than any “political proclivity”.
“The US election story will continue to garner enormous media interest. While the Democrats look to have turned the tide, there is plenty of time before voting and events can turn on a dime.
"Policy distinctions are less clear between parties than they have been in the past, but the national debt and deficit will continue to make investors nervous,” it said.
In addition to this, as corporate reporting season continues, the WGC posited a market sell-off initiated by earnings disappointments from US tech leaders could accelerate in late August following Nvidia’s results and could influence investor interest in gold as a hedge.
Finally, the Jackson Hole Economic Symposium, attended by central bank leaders from around the world, will take place just weeks before the first expected cut by the US Federal Reserve. This event, the WGC said, could leave equities, bonds, and gold at risk of a downward lurch if speeches suggest expectations are too dovish.
“Market positioning is turning increasingly dovish following recent weak US data prints,” the WGC observed.
“However, the one-sided bet on cuts leaves some room for disappointment, given a still healthy economy and the Fed’s historical reticence ahead of elections. This could translate to a downside risk for gold should the Fed language not deliver as the market expects.”
ETFs gain strongest monthly flows in over two years
Separately, the WGC found that July marked the strongest month for global gold ETFs since April 2022, with Western funds leading the way with inflows.
It noted gold ETFs attracted US$3.7 billion in flows last month, marking the third consecutive month of inflows.
In combination with a 4 per cent rise in the gold price over this period, this has helped drive total global gold assets under management (AUM) to a new month-end record of US$246 billion.
“Trading volumes rose across the board in July, with exchange-traded derivatives leading the rebound,” the WGC said, while growing prospects of rate cuts from major central banks “pushed up COMEX gold future net longs to a multi-year month-end high”.
Looking at regions, it found Asia extended its inflow streak to 17 months, attracting US$438 million in July, led by India-led inflows. Net inflows were also observed in China and Japan, which it attributed to equity market weaknesses and strong local gold price performances in the month.
Australia also recorded inflows of some US$26.3 million, “likely fuelled by a strong gold price performance in the depreciating local currency”, to bring total AUM to US$3.2 billion.
In North America, a flight to safe haven assets following the Trump assassination attempt, and Biden stepping down from the presidential race, saw inflows of US$2 billion to gold ETFs.
Additionally, a weakening dollar and falling US Treasury yields, in the face of falling inflation, a cooling labour market, and expectations of a rate cut from the US Federal Reserve in September, pushed the gold price to a record high during the month and spurred investor interest in gold ETFs, the WGC explained.
“Furthermore, we believe equity market volatilities, especially during the second half of July, also supported gold ETF demand,” it said.
Europe, meanwhile, attracted US$1.2 billion, the strongest since March 2022, led by the UK and Switzerland.
However, for the year, European and North American funds “remain in the red”, the WGC said.
