Gold hits four-month peak after U.S. welcomes weaker dollar

By Eric Onstad

LONDON (Reuters) - Gold prices hit their highest level in more than four months on Wednesday after a U.S. official welcomed a weaker dollar and investors sought insurance against uncertainty.

The dollar index touched three-year lows after U.S. Treasury Secretary Steven Mnuchin said that a softer dollar was good for the United States.

A decline in the dollar makes commodities priced in the greenback cheaper for buyers using other currencies.

Spot gold was up 1 percent at $1,353.80 an ounce at 1500 GMT, its highest since Sept. 8, while U.S. gold futures for February delivery rose by 1.3 percent to $1,353.70.

"It's the weaker dollar, it's the inflation focus and it's also to some extent the market continuing to look for a hedge against a world that's becoming incredibly complacent with stocks at record highs," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

"We're honing in on the 2017 high around $1,357, which is going to be the next big level."

U.S. President Donald Trump is due to speak Friday at the World Economic Forum in Davos, Switzerland, and investors are concerned he will use the speech to signal a more protectionist policy stance.

"Global investors are also concerned about potential trade wars ... which is stirring up some risk-aversion trade. That, in turn, is supporting gold," said Richard Xu, a fund manager at HuaAn Gold, China's biggest gold exchange-traded fund.

"I think gold prices will continue to trend higher along with other commodities, so $1,400 (an ounce) is our near-term target," Xu said.

Markets also expect an increase to U.S. interest rates in March, which would increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which gold is priced.

In other precious metals, silver gained 2.1 percent to $17.40 an ounce after touching $17.4320, the highest since Oct. 16.

Silver touched a 3-1/2-week low of $16.73 in the previous session after the U.S. imposed import duties on solar panels, a key sector of demand for silver, Commerzbank said.

"Silver is waiting to pop. It has become increasingly boxed in, but if we can take out this $17.45 area, then silver looks like having broken a downtrend going back quite a bit," Hansen said.

Platinum added 1 percent to $1,016.40 an ounce after touching $1,021.20, the highest since Sept. 8, while palladium rose 0.6 percent to $1,098.80.

(Additional reporting by Nithin Prasad in Bengaluru, Editing by Louise Heavens and David Goodman)