Gold Extends Gains in August, Supported by Dollar Weakness and ETF Inflows

Gold closed August on a strong rally, supported by several key factors, including a reversal in the U.S. dollar, rising geopolitical tensions, and record inflows into exchange-traded funds (ETFs). Entering September, the precious metal has maintained its positive momentum, edging closer to new all-time highs, according to the World Gold Council.

August Performance: A Steady Climb

Gold surged 4% in August to close at US$3,429 per ounce, bringing its year-to-date gains to over 31%. Notably, gold posted gains across all major currencies, despite some local currencies strengthening against the dollar, which was the weakest performer throughout the month.

The World Gold Council attributed the rally primarily to:

A sharp drop in the U.S. dollar early in the month.

Ongoing geopolitical uncertainty.

Robust ETF inflows totaling US$5.5 billion (53 tonnes), driven largely by North America (US$4.1bn) and Europe (US$1.9bn), while Asia and some emerging markets saw outflows.

In addition, net long positions on COMEX rose by US$2bn (+16 tonnes), albeit at a more restrained pace.

Gains Across Currencies

August figures showed gold advancing in every major currency:

USD: +3.9%

EUR: +1.6%

JPY: +1.4%

GBP: +1.8%

INR: +4.0%

TRY: +5.4%

This highlights the global nature of investment demand for gold.

Stagflation Concerns Emerge

The outlook was not purely economic. The report pointed to mounting risks of a stagflationary environment—a combination of slowing growth and rising prices—that has begun to worry investors, particularly in the United States.

ETF investors showed the strongest sensitivity to stagflation expectations.

Bullion and coin investors reacted positively, though less markedly.

Fast-money players such as CTAs remained more focused on interest rate trajectories, engaging less aggressively.

Shifting Market Balance: East to West

Between 2007 and 2022, gold’s price was tightly linked to U.S. real interest rates. But post-2022, emerging markets—especially Asian central banks—took on a leading role in driving demand.

Now, with those markets pulling back, Western investors, particularly in the U.S., are regaining influence over short-term price action. Should interest rates across the curve begin to decline, a fresh wave of U.S. demand could propel gold to new highs.

Yields and the Dollar: Between a Rock and a Hard Place

For now, long-term bond yields remain elevated, restraining gold’s upside. Yet fears of stagflation could tip the balance: any slowdown in U.S. growth combined with persistent inflation would likely push investors further into gold.

According to the World Gold Council, higher yields currently reflect risk premia and future inflation expectations, but this has not prevented gold from securing solid gains.

Gold Between Two Forces

Tailwinds: Dollar weakness, prospects of rate cuts, ETF inflows, and rising stagflation fears.

Headwinds: Persistently high long-term bond yields and cautious anticipation of Federal Reserve policy.

Despite these opposing forces, gold remains the primary beneficiary of global economic and political uncertainty, holding firmly above US$3,400 per ounce and expected to test higher levels in the coming months.