In commonly used English today, "gay" has become interchangeable with "homosexual" and most readers will understand it in that way, either as an adjective or as a noun. Though I'm not a fan of the plural form 'gays'.
As always, though, context is the most important thing because the english language is fabulously ambiguous towards the meaning of "gay". There are certain phrases, which admittedly are not in common usage, but where the reader would understand that the word gay would not mean homosexual. Unless there was a clear double meaning. e.g. "gay hue", or "gay abandon". Also, applying "gay" to transient things, such as a mood, would probably alert the reader to the fact you did indeed mean 'happy'.
In addition, "gaily" and "gaiety" would not be generally understood as pertaining to homosexuality though they are usually only used in archaic contexts. Unless perhaps the writer meant "gaiety" in terms of stereotypical homosexual behaviour, e.g. "there was much gaiety" could mean "everyone was acting in a very camp manner", or perhaps something like "there were many men who were proud to be gay".
Personally, because I am caught between favouring clear and concise language and loving the use of flowery, overblown and overwrought, archaic language, I try to reserve the word gay for when I mean merry. I also enjoy the possibilities of secondary meanings.