Gold is holding near $4,200/oz as expectations for a December Fed rate cut and a weaker US Dollar (USD) continue to underpin prices, though soft physical demand may cap further gains. Strong official-sector buying and political noise from Italy’s proposal to alter central bank gold ownership add new dynamics to an already firm gold market, HSBC' analysts report.

Softer USD and risk aversion fuel bullion strength

"Gold prices have recently returned to around $4,200 per ounce, underpinned by increased risk aversion and growing expectations of a 25bp rate cut by the Federal Reserve (Fed) at its 9-10 December meeting."

"The recent weakness in the broad USD − reflected by the US Dollar Index (DXY) falling below 99 − has further supported Gold prices, given their typically inverse relationship. However, with markets having largely priced in the anticipated rate cut, any subsequent decline in the USD is expected to be modest. While Gold’s upward momentum remains intact, our precious metals analyst notes that a lack of improvement in physical demand may constrain further near-term gains."

"Meanwhile, official sector demand for Gold remains strong. The World Gold Council reports that central banks purchased a net 53 tonnes of Gold in October, marking the highest monthly increase this year and a 36% rise from September. Nonetheless, potential changes are on the horizon, as the Italian government considers amending the ownership structure of central bank Gold reserves. Previous attempts to transfer these reserves to the Treasury have faced resistance from EU authorities."