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Why gold is set for its 7th week of gains

Maciej Frolow | Photographer's Choice RF| Getty Images

Gold prices are likely to head higher this week as tensions in the Middle East and Ukraine together with signs of stress in Europe's banking system plus a weaker dollar continue to support demand for bullion, CNBC's latest survey of market professionals shows.

The precious metal posted its sixth straight weekly gain last week, hitting $1,345 an ounce last Thursday – the highest since March. But firmer equity markets and technical selling on Monday took some of the steam out of the rally, pushing gold down 1.5 percent to an Asian session low of $1,317.55 an ounce. To some, the pullback suggested fatigue is setting in among buyers after the multi-week melt-up.

"I'm long at present, although I'm seeing signs the upside may be tough going," said Chris Weston, chief market strategist at IG Markets. "I am cautiously bullish."

Read More Gold ends above $1,339, highest since mid-March

Nevertheless, gold bulls form a clear majority in CNBC's latest survey of market professionals with 90 percent of respondents (18 out of 20) forecasting further gold price gains this week. Just one respondent expects a pullback while one says prices will be little changed.

The positive outlook for gold in CNBC's poll is reinforced by data from IG Markets showing 75 percent of clients with open positions expect gold prices to rise.

"The safe haven stars are currently aligned for gold," said Scott Carter, the chief executive officer of Los Angeles-based Lear Capital. "The world is a powder-keg of unrest. Quite frankly anyone that is not looking at gold as a timely investment is simply not paying attention."

A key risk event for gold will be Fed Chair Janet Yellen's closely-watched semi-annual testimony this week and any hints she may offer on the timing of the U.S. central bank's first rate hike. Many believe it's still too early for Yellen to signal such normalization is coming since the economic data don't yet warrant it.

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Ashraf Laidi, chief global strategist at City Index, said Yellen's remarks this week risked muddying the waters rather than offering any real visibility on the trajectory of short-term interest rates.

"Gold looks to sustain recent gains…whether from Portugal's banking woes, heightened uncertainty in the Middle East or fresh confusion – rather than uncertainty – from Yellen testimony," Laidi said in comments e-mailed to CNBC. "$1,420-25 is likely to be seen later this month."

Analysts at gold bear UBS, however, who are 'neutral' on gold for this week, credited gold's recent gains to financial speculators unwinding bearish bets in the futures markets, a feature which tended to support prices "over a short period of time" and as such was "unlikely to set the longer term price trend."

Evidence of weak physical demand from top Asian buyers China and India is also likely to keep prices in check, said Dominic Schnider and Giovanni Staunovo of UBS.

"We expect the gold price to top out at $1,350 and move towards $1,200 again over the next six months," the analysts said in e-mailed comments to CNBC. "Making use of the recent bounce to reduce excessive gold exposure is still advised."

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