Dollar slump pushes gold to highest since August 2016

By Peter Hobson

LONDON (Reuters) - Gold held near its highest since August 2016 on Thursday as a weak dollar helped it to extend gains of around 10 percent since mid-December, however prices ran into technical resistance at the peaks and investors booked profits.

A rapidly weakening of the dollar to its weakest in three years has made bullion cheaper for users of other currencies, fuelling demand and driving up gold prices.

The dollar plunged on Wednesday after the U.S. treasury secretary said he welcomed a weaker greenback and fell further on Thursday when comments by European Central Bank chief Mario Draghi that the bank might review its strategy boosted the euro.

But despite support from the dollar, gold ran into resistance after prices zoomed above their 2017 high and neared peaks hit in 2016 and 2014, said Saxo Bank analyst Ole Hansen.

"Having seen such a big surge, the market is just taking some chips of the table," he said.

"The explosive move we have seen almost continuously since Dec. 12 is really quite amazing. For this market to have a chance of going higher it desperately needs to consolidate."

Spot gold was up 0.1 percent at $1,359 an ounce at 1614 GMT after touching $1,366.07, the highest since Aug. 3, 2016. On Wednesday it jumped 1.3 percent in the biggest daily gain since August.

U.S. gold futures were 0.1 percent higher at $1,358.20 an ounce.

Technical support for gold was around the mid-January high of $1,344.44, said Hansen.

However, momentum indicators signalled that gold should rise further, said analysts at ScotiaMocatta.

Prices should be also underpinned by fears that global share prices could fall back from record highs and concern over protectionism in the United States, analysts said.

The weaker dollar may also fuel price rises and increase demand for gold as a hedge against inflation, said OANDA trader Stephen Innes.

"Exchange-traded fund (ETF) holdings (of gold) continue to increase ... we also see large open interest around the $1,350 strike level for the upcoming expiry, which should help to keep prices buoyant over the near term," MKS PAMP trader Sam Laughlin said in a note.

Holdings of gold in ETFs tracked by Reuters and bets by funds on higher gold prices on the Comex exchange have surged in recent weeks.

In other precious metals, silver was down 0.1 percent at $17.55 an ounce after touching $17.70, its highest since mid-September.

Platinum was up 0.6 percent at $1,018.49 after hitting its highest since March 2017 at $1,024.30.

Palladium fell by 0.8 percent to $1,101.24.

(Additional reporting by Nallur Sethuraman in Bengaluru; Editing by David Goodman and David Evans)