Dec 29 (Reuters) - Gold edged up on Friday as it looked set to mark its best year in three, supported by expectations that the U.S. Federal Reserve could begin easing its monetary policy as early as March next year.
Spot gold was steady at $2,064.75 per ounce as of 1248 GMT. U.S. gold futures , however, fell 0.4% to $2,074.50 per ounce.
Bullion has so far risen nearly 14% in a volatile year that saw prices swinging between lows near $1,800 earlier this year and in October to a record high of $2,135.40 on Dec. 4.
"Gold benefited from lower U.S. interest rates in recent weeks and ongoing solid demand from central banks. We expect this trend to continue in 2024," UBS analyst Giovanni Staunovo said.
Analysts expect that gold's recent rally could carry over to 2024 on the back of a softer U.S. dollar and Treasury yields as traders wager a pivot to interest-rate cuts early next year.
"To see higher levels, we need to see stronger demand from investors, such as a pickup in ETF inflows. For that, weaker U.S. economic data and lower inflation is needed, so that the Fed sounds more dovish," Staunovo said.
Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar.
"In case of bullish expectations about the Fed's monetary easing and unexpected escalation in geopolitical risks, gold could hit new records, with $2,300 being the probable maximum top," said Intesa Sanpaolo economist Daniela Corsini.
The dollar index (.DXY) was headed for a more than 2% decline in 2023. Benchmark 10-year Treasury yields were languishing near their lowest levels since July.
Spot silver fell 0.9% to $23.7239 per ounce, set to log a 1% yearly decline.
Platinum rose 0.1% to $1,003.24 per ounce, while palladium fell 1.5% to $1,116.31. Both autocatalytic metals were on track for a yearly decline, with palladium down around 38% - its biggest drop since 2008.
Reporting by Hissay Ongmu Bhutia and Swati Verma in Bengaluru; Editing by Jane Merriman and Chizu Nomiyama
