Gold touches two-month high as Trump unease hits dollar

By Peter Hobson

LONDON (Reuters) - Gold rose on Monday, touching its highest in two months as unease over the economic policies of U.S. President Donald Trump pushed investors towards safer assets and the dollar and U.S. bond yields fell.

Trump at his inauguration promised to put "America first", while his administration said it would withdraw from or renegotiate important trade agreements, raising fears that a protectionist White House could reduce global trade.

Uncertainty over Trump's policies sent the dollar to a 1-1/2 month low against a basket of currencies, while bond yields slipped from recent highs.

A weaker dollar makes gold cheaper for holders of other currencies, while lower yields reduce the opportunity cost of holding non-yielding bullion.

Spot gold was up 0.2 percent at $1,212.06 an ounce at 1110 GMT. It earlier touched $1,219.43, its highest since Nov. 22. U.S. gold futures were 0.6 percent higher at $1,212.

"The story is one of a weaker dollar and political uncertainty," said Danske Bank analyst Jens Pedersen.

Gold finished last week 1 percent higher, its fourth straight week of gains and longest consecutive string of weekly increases since July.

Underscoring the bullish view, data from the U.S. Commodity Futures Trading Commission (CFTC) showed that speculators raised their net long positions in COMEX gold contracts in the week to Jan. 17 for a second week.

Precious metal funds also had their biggest inflows in five months in the week to Jan. 18, according to Bank of America Merrill Lynch.

"Momentum indicators are biased to the upside," said ScotiaMocatta analysts, targeting $1,255.70 an ounce.

But gold faces resistance at $1,219 that it may struggle to break, according to Reuters technical analysis.

The gains may also be derailed by U.S. interest rate rises that could begin as early as March, faster than expected by the market, said Danske's Pedersen.

"That would be negative for gold and counter the effect of political uncertainty," he said.

Two governors of regional branches of the U.S. Federal Reserve said on Friday that economic strength warranted interest rates increases.

Higher interest rates mean that bond prices fall and yields rise, making such investments more attractive to those looking for safe-haven assets. Though gold is such an asset, it does not offer a yield to investors and costs money to store and insure.

Among other precious metals, silver was up 0.3 percent at $17.11 an ounce.

Platinum was 0.6 percent higher at $982.2. Palladium was up 0.1 percent at $786.5 an ounce. In the previous session, it hit $792.90, the highest since May 2015.

(Additional Reporting by Nallur Sethuraman and Arpan Varghese in Bengaluru; Editing by David Evans)