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Gold hits two-week high as dollar falls after G20 trade message

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Gold prices scaled a two-week peak on Monday as the dollar slumped to a six-week low after a G20 weekend summit that was dominated by the U.S. administration's protectionist stance on global trade.

The precious metal has been rising since last Wednesday, when the dollar dropped after the U.S. Federal Reserve raised interest rates but stopped short of predicting a sharper acceleration in monetary tightening over the next two years.

Gold is highly sensitive to falling interest rates, which decrease the opportunity cost of holding non-yielding bullion while weighing on the dollar, in which it is priced. A weaker dollar also increases the buying power of non-U.S. investors.

"Overall the geopolitical outlook still points to several hotspots ... and we're not going to see a focus on rate rises for the foreseeable future now, because that's out the way. Over the next few weeks one has to favour the upside," said Ole Hanson, head of commodity strategy at Saxo Bank.

Spot gold rose 0.41 percent to $1,233.38 an ounce, having earlier touched $1,235.50, its highest since March 6. U.S. gold futures for April delivery settled up $3.80 to $1,234.

Gold prices have rebounded more than $35 from its low hit before the policy decision to boost rates last Wednesday, while the dollar has fallen 1.7 percent from its high of 101.71 hit
the same day.

"The dovish outlook ... following last Wednesday's Fed meeting is clearly still having an impact. This is likely to lure a number of speculative financial investors back into gold after this group massively reduced their net long positions in the run-up to the meeting," Commerzbank said in a note.

Spot gold is expected to test a resistance at $1,237 per ounce, a break above which could lead to a gain to $1,243, Reuters technical analyst Wang Tao said.

Holdings of SPDR Gold, the world's largest gold-backed exchange-traded fund, fell 0.35 percent to 834.10 tons on Friday.

Spot silver rose 0.29 percent to $17.37 an ounce. Platinum was up 0.73 percent at $965, while palladium gained 0.91 percent to $779.50.