A record monthly close above $2,000 an ounce could just be the start for the gold market as one Canadian bank sees prices sustainably pushing above $2,100 through 2024 as headwinds from a stronger U.S. dollar and higher bond yields recede.

In their 2024 gold outlook, commodity analysts at TD Securities said that they see gold prices averaging around $2,019 an ounce for the year. While TDS is bullish on gold ahead of the new year, they are also warning investors that they need to be patient. The analysts see gold prices pushing to $2,100 by the second quarter of next year.

"With inflation still considerably above the Fed's two percent target, the US central bank is unlikely to signal an imminent easing. As such, the yellow metal could well be range-bound without a sustained breakout toward our $2,100 target occurring for a quarter or so," the analysts said in the report.

The analysts said that although inflation has fallen sharply from the June 2022 40-year highs, it remains well above the Federal Reserve's 2% target. Tuesday, the U.S. Department of Commerce said its core Personal Consumption Expenditures price index, the Federal preferred inflation measure, rose 3.5% in the last 12 months to October.

The analysts at TDS said that stubborn inflation could force the Federal Reserve to maintain rates in restrictive territory in the first half of the year.

However, the analysts also noted that the longer the Federal Reserve chokes off the economy to cool down inflation, the worse the potential recession will be. The Canadian bank sees the U.S. economy falling into a recession by the second quarter of next year, forcing the central bank to significantly cut rates.

The bank's fixed income analysts see the U.S. central bank cutting interest rates by 250 basis points, well above market expectations. According to the CME Fed Watch Tool, markets are pricing about 100-basis points in easing next year.

"We see investor interest re-emerge once it becomes apparent the US central bank is ready to pivot to a less hawkish stance. This should trigger short covering and new long extensions, which have a lot of room to run," the commodity analysts said.

While U.S. monetary policy will continue to affect investor demand, TDS said the market will remain well supported as they expect central banks to continue buying gold in 2024.

"We believe the official sector will continue to be supportive in the months to come and should be a catalyst for our $2,100+/oz sustained price projection next year. These physical purchases will be very important when the Fed pivots to a less restrictive policy, which should remove the high cost of carry as a big obstacle to discretionary traders," the analysts said.

According to data from the World Gold Council, central bank gold demand is on track to reach or even exceed last year's record purchases. In early November, the WGC said that central banks led by China, Poland, Singapore, and India had purchased more than 800 tonnes of gold in the first nine months of the year.

TDS said investors should keep an eye on Chinese demand as the People's Bank of China has plenty of room to increase its reserves.

"It should be noted that despite China's recent aggressive buying, the 4% gold representation in its FX reserve of $3.115 trillion is still very low. PBoC's reserve is much, much smaller than its geopolitical competitors," the analysts said. "The US holds some 69% of its FX reserve in the form of gold, Germany 68%, the Russian Federation 25% and India 8%. If Beijing increased the yellow metal's FX reserve to just 10%, it would be in the market to buy over an additional 3,000t."