Place a large, heavy-bottomed pot over medium heat. Add bacon; cook and stir until crispy and rendered fat starts to foam, about 10 minutes. Pour crisped bacon and rendered fat into a strainer placed over a bowl. When fat is drained and bacon is cool enough to handle, remove bacon to a cutting board and finely chop.

Return the pot to medium heat; drizzle 2 teaspoons reserved bacon fat and butter into the pot. Add onions and salt; cook until until soft and translucent, 7 to 10 minutes.

Stir brown sugar, sherry vinegar, 1 teaspoon thyme leaves, black pepper, and cayenne into onion mixture; add bacon. Stir water into bacon mixture and cook until jam has a brick-brown color and thick consistency, 10 to 15 minutes.

Remove from heat and add balsamic vinegar, olive oil, and remaining 1/2 teaspoon thyme; stir until shiny and heated through.

Store in an airtight container.