Heat a Dutch oven over medium heat. Add the diced bacon and cook, stirring occasionally, until the fat is rendered and the bacon begins to crisp — about 15 minutes.

Drain all but 1 tablespoon of bacon fat from the pot.

Add onions, mustard seed, brown sugar, balsamic vinegar, and ¼ cup water. Stir to combine.

Cover the pot and reduce heat to medium-low. Cook undisturbed for 20 minutes.

Remove the lid, partially cover the pot, and continue cooking for about 1 hour, stirring every 10–15 minutes.

If needed, add a bit more water and continue cooking until the onions are deeply caramelized and the mixture is thick and jammy.

Season to taste with salt and freshly ground black pepper. Let cool slightly before transferring to a jar or airtight container.