Picture: ISTOCK
Picture: ISTOCK

London — Gold prices hit the highest in more than four months on Wednesday after a US official welcomed a weaker dollar and investors sought insurance against uncertainty.

The dollar index touched fresh three-year lows after US treasury secretary Steven Mnuchin said a softer dollar was good for the US. A decline in the dollar makes commodities priced in the greenback cheaper for buyers using other currencies.

Spot gold was up 0.7% at $1,350.43 an ounce at 10.42am GMT, while US gold futures for February delivery climbed 1% to $1,349.80 an ounce.

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

US President Donald Trump is due to speak at the World Economic Forum in Davos, Switzerland, on Friday, 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, so that, in turn, is supporting gold," said Richard Xu, a fund manager at China’s biggest gold exchange-traded fund, HuaAn Gold. "I think gold prices will continue to trend higher along with other commodities, so $1,400 [an ounce] is our near-term target."

Markets also expect a US interest-rate hike in March. Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion while boosting the dollar.

In other precious metals, silver gained 1.1% to $17.23 an ounce after touching a three-and-a-half-week low of $16.73 in the previous session. Platinum added 0.4% to $1,010.50 an ounce, while palladium rose 0.9% to $1,101.47 an ounce.

Reuters