The start of a Federal Reserve rate-cutting cycle often coincides with a rally for gold, but investors might be surprised to find out that the upward move has already been going on all year. Spot gold entered Wednesday up nearly 25% in 2024, outpacing the S & P 500 and Nasdaq Composite . The Fed announced on Wednesday afternoon that it was lowering its benchmark interest rate by 0.5 percentage points. XAU= YTD mountain Gold is outperforming the major U.S. stock index year to date. Typically, gold moves opposite of interest rates. The idea is that the yellow metal, which throws off no cash, is less attractive when even safe U.S. Treasurys are offering investors healthy yields. After the start of the Fed’s last non-pandemic rate-cutting cycle on July 31, 2019, spot gold rose 6% between the first cut and the end of the year. Gold’s 2024 move so far raises the question of whether the rate-cut rally is already priced in. Gold is already near the top of the 2024 range of outcomes projected by BlackRock Investment Institute, for example. But the optimistic case for gold is that there’s been a “structural change” in demand for the yellow metal and that falling rates should bring in additional buying, said Robert Minter, director of investment strategy on the ETF team at Abrdn. Central bank buying The crux of the argument for gold is that the rally so far has largely been fueled by global central banks and other entities, like sovereign wealth funds, and not retail investors. Central bank gold demand was roughly double its pre-pandemic levels in 2022 and 2023 and is tracking toward similar total buying this year, according to the World Gold Council . The purchases make sense for some entities as a risk management scenario even if there is no “Armageddon” scenario looming for the U.S. dollar or global financial markets, Minter said. “They’re playing catch up. Emerging market central banks have about 6% of their FX reserves in gold, and developed markets have about 12%. And so what they’re trying to do is they’re trying to harden their currencies in case anything happens and they’re needs to be some sort of monetary reset,” Minter said. The United States government’s use of the global banking system to enforce economic sanctions, like it has against Russia since the invasion of Ukraine, is another issue that may have spooked some foreign policymakers. “Weaponizing dollar-based systems, including SWIFT , has led to more people, more countries specifically — more sovereign wealth funds and central banks — not trusting dollar-based assets as much. It’s a big part of why we’re seeing a buildup in gold,” said Lauren Goodwin, economist and market strategist at New York Life Investments. ETF flows As central banks have been bidding up gold, smaller investors were selling for much of this year. According to FactSet, gold ETFs as a group had more than $800 million of net outflows for the year through Sept. 16. Even the SPDR Gold Shares (GLD) fund had negative year-to-date flows until recently, but it has now turned positive after bringing in more than $1 billion in the past month. If smaller investors are jumping back in to gold, that could give it another boost. “We don’t see any change in central purchases going forward … and as of the end of June, we’re starting to see ETF investors flip from selling gold on average to buying small amounts of gold,” Minter said. The most popular gold fund so far this year, according to FactSet, has been another SPDR product. The Gold MiniShares Trust (GLDM) has had about $900 million of net inflows. With an expense ratio of 0.1%, GLDM is also cheaper than GLD, which has a fee of 0.4%. The VanEck Merk Gold ETF (OUNZ) and the Abrdn Physical Gold Shares ETF (SGOL) are the other funds with at least $100 million in net inflows this year, according to FactSet. Where’s the ceiling? Technical analysts also see positive signs in gold’s price chart that suggest the rally may have room to run. “Gold remains among the best charts in our work … sticking w/ our $2800 target here. Continue to buy pullbacks when given the opportunity,” Chris Verrone, head of technical and macro research at Strategas, said in a Sept. 16 note to clients. That target is about 9% above where gold was trading Wednesday. Minter similarly identified the $2,700 to $2,800 range as the next area to watch for gold, and said that the total rallies after previous rate cuts were bigger than the 2024 rise so far. To be sure, some of those cutting cycles coincided with major economic recessions, in which gold’s defensive qualities may have helped to improve its performance. Federal Reserve officials have also said that they believe the so-called neutral rate has risen since the Covid pandemic, which suggests that yields could remain well above where they were last decade once the cutting cycle is completed.