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Gold prices climbed to over three-week highs on Thursday, as the U.S. dollar and bond yields hit multi-month lows on mounting bets of U.S. interest rate cuts as soon as March.

Spot gold was up 0.4% at $2,085.40 per ounce by 0800 GMT, its highest since a Dec. 4 record of $2,135.40. It looked set for its best year in three with a gain of 14%.

U.S. gold futures edged up 0.2% to $2,096.40.

Lower yields and dollar indicate diminished risk around interest rate volatility and "have given gold that extra drive towards $2,100-per-ounce level," said Kyle Rodda, a financial market analyst at Capital.com.

Bets on the Federal Reserve cutting rates firmed following cooler inflation data, with traders now indicating an 88% likelihood of policy easing in March, according to the CME FedWatch tool.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

Meanwhile, the dollar index slipped to a five-month low and was set for its worst year since 2020, while the benchmark 10-year bond yield languished near its lowest levels since July, boosting gold's appeal. [US/] [USD/]

Going into 2024, gold's movement "depends on whether the markets have gone too ahead of themselves while pricing in rate cuts, and whether recessionary conditions start to emerge in the U.S.," Rodda said.

Market participants now await U.S. initial jobless claims data, due at 1330 GMT, for further cues on monetary policy.

Spot silver rose 0.8% to $24.44 per ounce and was poised to end the year with an about 1.4% gain.

Platinum rose 0.6% to a more than six-month high of $1,002.39. Palladium fell 0.3% to $1,150.27, and was on track for its biggest yearly decline since 2008.