January 24, 2018 / 1:35 PM / 9 months ago

PRECIOUS-Gold hits 1-1/2 year peak after U.S. welcomes weaker dollar

    * U.S. dollar touches 3-year low
    * Concern over potential trade wars supports gold

 (New throughout, updates prices, market activity and comments;
adds second byline, NEW YORK dateline)
    By Renita D. Young and Eric Onstad
    NEW YORK/LONDON, Jan 24 (Reuters) - Gold prices rose on
Wednesday, hitting their highest since August, 2016, as
investors sought insurance against possible inflation after U.S.
Treasury Secretary Steven Mnuchin welcomed a weaker dollar.
    Spot silver prices hit a four-month high, following the
precious metals complex, traders said. 
    The dollar index        touched three-year lows after
Mnuchin said 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 1.4 percent $1,360.23 an ounce at
2:05 p.m. EST (1905 GMT). U.S. gold futures         for February
delivery settled up $19.60, 1.5 percent, at $1,356.30 per ounce.
    Silver        was up 3 percent at $17.57 an ounce, the
highest since mid-September.
    "It all comes down to if the dollar continues to stay weak
and inflation trends upwards, that would be confirmation that we
have inflationary pressures building, which would move gold up
further," said Rob Lutts, chief investment officer of Cabot
Wealth Management in Salem, Massachusetts, adding the next
support level would be around $1,360 per ounce.
    "If we can clearly get above the 50 to 60 range, as high as
75 or 80, that will get gold to break out of that range we’ve
been trading in."
    U.S. President Donald Trump was due to speak on Friday at
the World Economic Forum in Davos, Switzerland. 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 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 touched a 3-1/2-week low of
$16.73 in the previous session. 
    "Silver has been following gold," said George Gero, managing
director of RBC Wealth Management in New York. "Option
expiration is not expected to affect silver much because silver
options are not as big as gold options."
    Platinum        added 0.8 percent to $1,014.50 an ounce
after touching $1,021.20, the highest since Sept. 8, while
palladium        rose 1.8 percent to $1,111.10.

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