A system and method that use a fluid gauge proximity sensor. A source of modulated unidirectional or alternating fluid flow travels along at least one path having a nozzle and a flow or pressure sensor. The fluid exists at a gap between the nozzle and a target. The sensor outputs an amplitude modulated signal that varies according to a size of the gap. The amplitude modulated signal is processed either digitally or in analog devices, which can include being filtered (e.g., band pass, band limited, high pass, etc. filter) to include the modulated frequency and sufficient bandwidth on either side of that frequency and/or being demodulated using a demodulator operating at the acoustical driver modulation frequency. Using this system and method can result in only ambient acoustical energy in a desired frequency range of the device actually having the opportunity to interfere with the device operation. This can lower the devices overall sensitivity to external acoustical noise and sensor offset.