In August 2024, gold continued its impressive run from July, closing the month with a notable 3.6 per cent gain at USD 887.98 per 10 grams, according to the World Gold Council (WGC).

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The precious metal reached a new all-time high on August 20 before experiencing a slight decline as the month drew to a close.

According to the Gold Return Attribution Model (GRAM), the primary driver of gold's ascent was a substantial drop in the US dollar.

This was coupled with a decrease in 10-year Treasury yields, as the Federal Reserve signaled potential rate cuts. However, gold's rise was somewhat tempered by a momentum factor. Historically, a strong performance in the previous month often leads to a weaker return in the subsequent month.

A development in August was the reduction of import duties on gold in India, effective from late July. This policy change has spurred a surge in gold demand across the country. Reports indicate a strong uptick in buying interest from both jewelry retailers and consumers.

Additionally, global physically-backed gold ETFs saw their inflow streak extend to four months, with Western funds contributing the majority of the flows.

The current macroeconomic environment is characterized by a mix of contradictory economic data. The approaching US presidential election adds an additional layer of uncertainty, prompting increased investor activity in options markets. Gold options spreading positions have surged to multi-year highs, reflecting a market preoccupied with both a potential rate-cutting cycle and election outcomes.

Globally, economic indicators present a mixed picture. GDP growth remains steady at 2.5 per cent, with composite PMIs in positive territory.

The Federal Reserve's recent signals at Jackson Hole, indicating possible interest rate cuts, have left short-term rate markets largely unchanged.

Markets have priced in nearly 100 basis points of cuts by year-end, anticipating further labor market weakening. Fed Chair Jerome Powell emphasized that the timing and pace of rate cuts will be data-dependent, navigating between preemptively avoiding a recession and managing inflation risks.

Investor behavior has shifted towards options markets, with elevated flows into equity options surpassing previous highs.

This trend is mirrored in the gold options market, where options spreading positions have risen significantly. Historical data suggests that such spikes often correlate with either interest rate policy shifts or major market events.