* Gold eyes best year since 2020 with 13% rise
* Dollar set for first yearly fall since 2020
* Palladium braces for worst year since 2008
Dec 27 (Reuters) - Gold touched its highest in more than three weeks on Wednesday, as traders bought zero-yield bullion in anticipation of U.S. interest rate cuts next year, while a dip in the dollar and bond yields also supported prices.
Spot gold was up 0.4% at $2,074.49 per ounce by 10:24 a.m. ET (1524 GMT), hitting its highest since Dec. 4 and on track to gain 13% in 2023, its best year since 2020.
U.S. gold futures rose 0.8% to $2,086.30.
The dollar index hit a five-month low, and eyed its first yearly slide since 2020, making bullion more attractive for overseas buyers. Benchmark 10-year Treasury yields were also near five-month lows.
"Going into the new year, the theme seems to be from central banks around the world that lower interest rates are coming and with that, gold will have nothing but upside to go here," said Bob Haberkorn, senior market strategist at RJO Futures.
The Federal Reserve is set to start the new year with fresh evidence that U.S. price pressures are firmly in retreat, with data last week marking the first time since March 2021 that the annual PCE price index was below 3%.
"There are a lot of ifs and buts, permutations and combinations, but the fact remains that no matter what, the Fed's not going to hike the rates again... it's the base case scenario," said Kunal Shah, head of research at Nirmal Bang Commodities in Mumbai.
The cooler U.S. inflation data emboldened analyst expectations of a rate cut by the Fed in March, with traders now pricing in about an 80% chance, according to the CME FedWatch tool.
Lower interest rates decrease the opportunity cost of holding non-yielding bullion.
Spot silver rose 0.1% to $24.23 per ounce, while platinum gained 0.7% at $985.07, its highest since July 19.
Palladium added 0.4% to $1,178.30, but was still on track for its worst year since 2008.
(Reporting by Deep Vakil in Bengaluru; editing by Christina Fincher)
