Gold climbs to 3-1/2 month high amid political worries

By Arpan Varghese

(Reuters) - Gold hit its highest in about 3-1/2-months on Friday, on a weaker dollar and as uncertainties surrounding U.S. President Donald Trump's policies and elections in Europe fueled safe-haven demand.

Spot gold was up 0.4 percent at $1,254.10 per ounce at 0809 GMT, after touching its highest since Nov. 11 at $1,254.31 earlier in the session.

The dollar index was down 0.2 percent at 100.87.

U.S. gold futures edged up 0.3 percent to $1,255.

Tempered expectations of a U.S. rate hike in March following the release of the minutes from the U.S. Federal Reserve's last meeting were also seen supporting the bullion.

"Even in the event of a rate increase, we doubt the precious metal will lose much ground ahead of the key presidential elections in France in April, coupled with the Washington gridlock that seems to be calcifying with greater intensity after each passing day," said INTL FCStone analyst Edward Meir.

While many Fed policymakers said it may be appropriate to raise interest rates again "fairly soon," according to the minutes, they also hinted at the depth of uncertainty at the bank over lack of clarity on the new administration's economic programme. [nFOMMDED8Q]

"Uncertainty about the policy of the Trump administration, protectionism, and fears of a trade and currency war seems to have offset the hawkish comments from the Fed officials," said Commerzbank analyst Carsten Fritsch.

Trump on Thursday called China "grand champions" of currency manipulation, doing little to raise confidence on trade relations between the world's two biggest economies. [nL1N1G825N]

Political uncertainties have triggered continuous inflows into gold exchange traded funds (ETFs), which seems to be the main driver for gold prices at the moment, Fritsch added.

Holdings of the largest gold-backed ETF, New York's SPDR Gold Trust, have risen over 5 percent this month.

Investors are looking ahead to an address by Trump to Congress next week for further clarity on his economic policy.

Meanwhile, U.S. Treasury Secretary Steven Mnuchin on Thursday laid out an ambitious schedule to enact tax relief for the middle class and businesses by August. [nL4N1G8497]

Mnuchin's comments "...signaling a delay until August of the much vaunted tax reform package, gave gold bulls the uncertainty green light they needed to take the yellow metal higher," said Jeffrey Halley, a senior market analyst at OANDA.

Spot gold may gain more to $1,278 as it has more or less broken above a resistance at $1,249, said Reuters technical analyst Wang Tao. [nL4N1G91G5]

In other precious metals, silver was up 0.4 percent at $18.22 per ounce after touching its highest in 3-1/2-months at $18.25. Silver has gained about 1.5 percent this week in what could be its ninth straight weekly gain.

Platinum rose 0.8 percent to $1,010.74 per ounce, while palladium gained 0.1 percent to $773.75.

(Reporting by Arpan Varghese and N R Sethuraman in Bengaluru; Editing by Richard Pullin and Subhranshu Sahu)