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Gold price pushes to nearly 2-week high as economic data fails to support U.S. dollar

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(Kitco News) - The gold market is taking advantage of a weaker U.S. dollar and falling bond yields as prices rise to a nearly two-week high and look to challenge a critical resistance level around $1,750 an ounce.

According to some analysts, sentiment in gold has been slowly improving after bouncing off a double bottom last week and pushing back above $1,700 an ounce. However, many analysts say that the gold market will remain stuck in neutral if it can't at least get past $1,750.

June gold futures last traded at $1,745 an ounce, up nearly 1% on the day.

"The market is pondering whether the double bottom has sowed the foundation for a recovery," Ole Hansen, head of commodity strategy at Saxo Bank, said in a report Tuesday. However, he added that the true test in gold comes in at $1,765 an ounce.

"After losing 10% during the first quarter to come bottom of the performance table, the technical level it needs to break as a minimum remains at $1765," he said. "Most of the recovery has been a result of a weaker dollar and yields that have stopped rising. Stronger than expected inflation remains gold, and with that, silver's best chance of recovery."

Carsten Fritsch, precious metals analyst at Commerzbank, noted that some tailwinds are starting to pick up for the gold market, even as the precious metal continues its bottoming process.

Fritsch noted that gold is finding some technical momentum as solid economic data fails to provide support for the U.S. dollar and bond yields. Although still holding at their highest levels in more than a year, the yield on 10-year notes is currently trading at 1.69%.

The drop in yields comes as the International Monetary Fund raised its growth forecast for the U.S. The IMF expects the U.S. economy to grow 6.4% this year, up compared to its January forecast for 5.1% growth.

For the global economy, the IMF expects to see growth of 6%, which would be the strongest year since 1976.

Last week U.S. economic data showed continued improvement in the labor market as more than 900,000 workers found jobs last month. Data also showed record sentiment growth in both the manufacturing and service sectors.

"With U.S. yields refraining from pushing higher in recent sessions, this has provided gold with some reprieve, but given that U.S. economic data has been printing strong readings, upside risks do remain for U.S. yields," said Justin McQueen, market analyst at DailyFX.com

Fritsch said that the U.S. dollar and bond yields aren't rising because investors continue to expect the Federal Reserve to maintain its ultra-accommodate monetary policies. Inflation has now become the threat to watch for, he said.

"Concerns could emerge instead that the U.S. economy might also overheat as a result of the massive fiscal stimulus, that inflation risks could rise considerably and that the Fed could fall 'behind the curve.' In such a scenario, gold would be the big winner," he said.

However, Fritsch said that for gold to overcome its current malaise, prices need to push above $1,760 an ounce.

Not all analysts are convinced that gold prices can push higher in the near term. Commodity analysts at TD Securities noted that the Federal Reserve's relaxed attitude to the bond market selloff, which is driving yields higher, remains a significant risk to the gold price.

"With the Fed's put far out of the money, flows into gold are likely to remain subdued," the bank said in a report Tuesday.

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