Gold is back in the spotlight, and eyes are on the Fed. As the U.S. Federal Reserve prepares for what could be an aggressive rate cut, gold ETFs, especially the gold-bullion tracking ETFs such as the SPDR Gold Trust GLD and the iShares Gold Trust IAU, are riding the wave.

Gold prices, already hovering near record highs, are inching closer to a breakthrough that could send the precious metal into uncharted territory.

With the dollar softening, the allure of gold as a safe haven has only intensified. Year-to-date, the GLD has surged nearly 25% and the IAU has gained about 25%, outpacing broader market indices like the S&P 500 (which is up 18% in comparison). While physical gold-tracking ETFs have been surging, ETFs tracking gold miners haven’t been left behind.

The VanEck Gold Miners ETF GDX is up about 27% YTD and the VanEck Junior Gold Miners ETF GDXJ is up 28% YTD.

Gold Shines on Dovish Fed, Weaker Dollar

Investors seem unfazed by today's slight lull in prices — understandable, given the anticipation of a possible 50-basis-point rate cut. The weakening dollar, compounded by the Fed’s dovish tone, is creating the perfect storm for gold to shine even brighter.

Behind the scenes, central banks and institutional buyers have been steadily piling into gold, boosting its momentum. Over the past three months, gold-tracking ETFs have drawn in billions in inflows, with retail investors now jumping on board, hoping to capitalize on the metal's momentum.

The net inflows into these ETFs signal that many see more upside ahead, especially as the Fed's anticipated rate cuts could push yields lower, further reducing the opportunity cost of holding gold.

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Gold Emerging As A Preferred Hedge

The macroeconomic backdrop has added extra fuel to the rally. From rising geopolitical tensions to global economic uncertainties, investors are seeking shelter, and gold is emerging as their preferred hedge. The metal's safe-haven appeal is being bolstered by fears of economic slowdowns, not just in the U.S. but globally.

China's persistent economic struggles, for example, are only adding to the demand for gold, as investors diversify away from riskier assets.

What Could Temper Gold Bulls?

While a rate cut seems all but certain, there are still factors that could keep a lid on gold's upside. Any sign of a more conservative move by the Fed, such as a smaller-than-expected cut, could temper bullish enthusiasm.

There's also the possibility that stronger-than-expected economic data could boost the dollar, muting gold's rally.

For now, though, the combination of central bank buying, ETF inflows and weakening dollar dynamics makes gold an attractive option for those looking to ride out market volatility.

With the potential for gold to push through its previous highs, investors are watching closely to see if the Fed's next move will give the precious metal the final nudge it needs.

Will gold soar to new heights, or will a more cautious Fed decision put the brakes on the rally? The only thing certain is that, for now, gold is shining brighter than ever.

Read Next:

• Ahead Of FOMC Meeting Paul Krugman Says Fed Rates Will Be Elevated Even With 50 Bps Cut: ‘Argument For Incrementalism Is Very Weak’

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