Gold delivered a moderate performance this year. Gold bullion ETF SPDR Gold Shares (GLD Quick QuoteGLD - Free Report) added more than 9.8% this year (as of Dec 4, 2023). However, after wild swings, gold showed a strong rebound lately and hit an all-time high.

Gold prices tend to move inversely to interest rates. When interest rates decline, non-interest-bearing gold becomes more attractive as it competes more favorably with interest-bearing investments like bonds. A less-hawkish Fed in the past few months have led to the gains in the currency.

Additionally, the demand for inflation hedge and growing fears regrading global growth worries are driving investors toward gold, as it is considered a safe haven. Gold demand in India, the world's second-largest consumer of the yellow metal, increased 10% during the third quarter of 2023, helped by a slight softening of gold prices and festive demand, according to the World Gold Council (WGC). Meanwhile, gold demand in China, the world's largest gold-consuming nation, rose marginally in Q3 this year.

Let’s delve a little deeper.

“Gold In Early Days of a Bull Market”?

"I think gold is in the early days of a bull market breaking out to new highs," Mike McGlone, Bloomberg Intelligence senior macro strategist, told Yahoo Finance.

And why not?

There is almost no chance of a Fed rate hike this year. There is 84.8% chance of rates being the same in January and about 41.8% chance of rates remaining the same in March 2024, per CME FedWatch Tool. A decline in inflation has boosted the probability of a less-hawkish Fed. This would likely weaken the U.S. dollar and favor gold prices. Talks are rife that The Fed may even cut rates in latter part of 2024.

The month of December is especially upbeat for gold. Normally, there is a rise in jewelry demand which helps gold produce positive average returns of 0.71% and 1.3%, respectively, in November and December. Plus, a generally weaker dollar in December promotes gold in recording its average second-best month of the year, per an article on capex.com.

India – the world's second-largest consumer of the yellow metal -- play a key role in determining gold prices during November-December due to the occurrence of the Dhanteras festival (the most auspicious day in India for buying items precious metals) and wedding season.

Central Banks Buying

Central banks in emerging markets are seeking to lower reliance on the U.S. dollar for reserves holdings (especially in light of the United States using the dollar as a tool in its sanctions against Russia) and is also intending to hedge against inflation. In the first nine months of the year, China has taken the lead in driving unprecedented central bank acquisitions of gold worldwide, followed by Poland and Turkey, per Financial Times. The buying has been on top of last year’s all-time high.

Global official gold reserves are 120% higher quarter over quarter and boast the second-highest third quarter total since the industry group World Gold Council started publishing the quarterly metric, per yahoo Finance.

Bottom Line

The gold’s rally from here depends on the Fed’s behavior and the progression of geopolitical crisis. If the Fed stays put from here, it would be a good new for gold investing. Gold investors should closely watch the economic and market events before taking any decision.

Hence, investors should track the ETFs like iShares Gold Trust (IAU Quick QuoteIAU - Free Report) , abrdn Physical Gold Shares ETF (SGOL Quick QuoteSGOL - Free Report) , SPDR Gold MiniShares Trust (GLDM Quick QuoteGLDM - Free Report) and Goldman Sachs Physical Gold ETF (AAAU Quick QuoteAAAU - Free Report) closely. In a bull-case scenario, investors should track leveraged gold ETF ProShares Ultra Gold (UGL Quick QuoteUGL - Free Report) .