[NEW YORK] Gold prices rose on Wednesday, hitting their highest since August, 2016, as investors sought insurance against possible inflation after US 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 Mr 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 per cent at US$1,360.23 an ounce at 2.05pm EST (1905 GMT). US gold futures for February delivery settled up US$19.60, 1.5 per cent, at US$1,356.30 per ounce.

Silver was up 3 per cent at US$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 US$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."

US 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 US$1,400 (an ounce) is our near-term target," Mr Xu said.

Markets expect an increase to US 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 US$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 per cent to US$1,014.50 an ounce after touching US$1,021.20, the highest since Sept 8, while palladium rose 1.8 per cent to US$1,111.10.

REUTERS