Gold “staged a strong comeback” after June’s slide to hit a record high of $2,480 an ounce in mid-July, but that streak could be hampered by a number of “powerful cross-currents” playing out in August, according to the World Council on gold (WGC).

In its latest monthly outlook, the WGC highlighted a strong monthly gain for the commodity, driven mainly by weaker bond yields and the US dollar.

“According to our gold return attribution model, gold has been pushed higher by lower 10-year Treasury yields and, to a lesser extent, by a weaker US dollar,” it said.

Meanwhile, the main negative contribution came from COMEX futures, where the increase in open interest was larger than the increase in net long positions.

Looking ahead, while seasonality has historically favored gold in August, the WGC outlined three key considerations that could hurt this momentum, namely the US election, tech earnings and sentiment around interest rates following the Federal Reserve's economic symposium of the USA in Jackson Hole.

In the case of the US election, given the great uncertainty surrounding 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 leaning" .

“The US election story will continue to attract huge media interest. Although the Democrats appear to have turned the tide, there is plenty of time before the vote and events can turn on a dime.

"Policy differences are less clear between the parties than they have been in the past, but the national debt and deficit will continue to unnerve investors," it said.

In addition, as the corporate reporting season continues, the WGC predicts that a market sell-off triggered by earnings disappointments from US tech leaders could accelerate in late August following Nvidia's results and could weigh on interest in investors to 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 rate cut by the US Federal Reserve. That event, the WGC said, could put stocks, bonds and gold at risk of a downside if the speeches suggest expectations are too modest.

"Market positioning has worsened following recent weak US data prints," the WGC noted.

"However, the unilateral bet on cuts leaves some room for disappointment, given the still-healthy economy and the Fed's historic dovishness ahead of the election." That could translate into a downside risk for gold if the Fed's language doesn't pan out as the market expects.”

ETFs receive strongest monthly inflows in more than two years

Separately, the WGC found that July marked the strongest month for global gold ETFs since April 2022, with Western funds leading the inflows.

It noted that gold ETFs attracted US$3.7 billion in inflows last month, marking the third straight month of inflows.

Combined with a 4 percent rise in the price of gold over the period, this helped push 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 recovery," the WGC said, while growing prospects for rate cuts from major central banks "pushed COMEX net gold futures to a multi-month end-of-month high."

Looking at regions, it found that Asia extended its streak of inflows to 17 months, attracting US$438 million in July, led by India-led inflows. Net inflows were also seen in China and Japan, attributed to weakness in the equity market and strong performance of local gold prices during the month.

Australia also recorded inflows of around US$26.3 million, "likely fueled by the strong performance of the gold price in the depreciating local currency", to bring total AUM to US$3.2 billion.

In North America, a flight to safe-haven assets following Trump's assassination attempt and Biden's withdrawal from the presidential race saw a $2 billion inflow into gold ETFs.

Additionally, a weaker dollar and falling US Treasury yields, amid falling inflation, a cooling labor market and expectations of a US Federal Reserve rate cut in September, pushed gold to a record high for the month and spurred investor interest in gold ETFs, the WGC explained.

"Furthermore, we believe equity market volatility, particularly in the second half of July, has also supported demand for gold ETFs," it said.

Meanwhile, Europe 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.