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(Kitco News) - For most of the summer, analysts have highlighted pent-up demand building in the gold market. Many investors are on the sidelines of the gold market, waiting for current market conditions to shift.

With gold prices ending Friday with nearly a 3% gain, is investor money starting to move back into the market? Is this a more sustainable market shift or another bull trap?

The Federal Reserve's aggressive monetary policy stance has kept a lid on investment demand for gold as rising interest rates have pushed the U.S. dollar to 20-year highs. Wednesday, Federal Reserve Chair Jerome Powell reiterated his hawkish stance that the Federal Reserve's job is not done as inflation remains too high.

The U.S. central bank is trying to slow down the economy to cool inflation, which is at its highest level in 40 years.

Analysts note that it has been easy for Powell to sound hawkish when the economy remains reasonably resilient; however, cracks are starting to show. There are growing expectations that, faced with a recession, the Federal Reserve will quickly loosen its monetary policy.

Powell even said as much in this press conference: "If we over-tightened, we have … our tools … [to] support economic activity."

Powell's comments come as the yield curve inversion in U.S. bonds has reached its widest level in 40 years, with the yield on two-year notes more than 50 basis points above the 10-year. Some analysts also note that the latest U.S. employment data is weakening, despite a strong headline number.

Ahead of the weekend, the Bureau of Labor Statistics said 261,000 jobs were created last month, beating expectations. However, the unemployment rate pushed to 3.7%. The unemployment rate is based on the household survey.

"According to the household survey, the U.S. economy shed 328,000 jobs last month," said Christopher Vecchio, senior market analyst at "The last leg of the economy is starting to buckle, and the Fed might not need to get the terminal rate as high as markets expect."

Gold prices up 2% as a key recession gauge hits a 40-year high

Meanwhile, renewed safe-haven demand in the investment market comes as the World Gold Council reported solid demand for the physical metal. Despite lackluster investor interest, global physical demand for gold increased 28% in the third quarter.

A part of the report attracting a lot of attention is that central banks bought nearly 400 tonnes of the precious metal between July and September.

"This is the largest single quarter of demand from this sector in our records back to 2000 and almost double the previous record of 241t in Q3 2018," the WGC said in the report.

Although rising fear sentiment is bringing investor money back into gold, many analysts note that there is still a lot of work to do to undo seven consecutive months of losses. Gold's push back to $1,680 puts the market back into neutral territory. Gold needs to push back above $1,735 to reverse the current downtrend. According to some analysts, the money sitting on the sidelines won't come back into the market until prices push close to $1,800.

So, we wait to see if this is a sustainable rally or another trap.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.