By Sethuraman N R
(Reuters) - Gold prices on Thursday edged up to their highest since August 2016, buoyed as the U.S. dollar hit three-year lows after comments by U.S. Treasury secretary Steven Mnuchin that he welcomed a weaker currency.
Spot gold had risen 0.2 percent to $1,360.56 per ounce by 0724 GMT, after hitting its highest since Aug. 3, 2016 at $1,366.07.
U.S. gold futures were up 0.3 percent at $1,359.70 per ounce.
The dollar slumped after Mnuchin told the World Economic Forum in Davos on Wednesday that "obviously a weaker dollar is good for us as it relates to trade and opportunities". His comments were seen by markets as a departure from traditional U.S. currency policy.
"Investors were more than willing to pay hefty insurance premia as a hedge against the inflationary impacts from a hapless dollar," said Stephen Innes, APAC head of trading at OANDA.
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"With traders' base case scenario to sell the dollar at all costs, gold prices should remain well supported on dips and could be poised to move even higher on the next U.S. dollar wobble."
The dollar index, which measures the greenback against a basket of currencies, was down 0.1 percent after hitting its weakest since December 2014 at 88.805.
"We suspect the greenback could move lower still ... Conversely, gold's charts look increasingly constructive and could likely push higher on technicals alone," said INTL FCStone analyst Edward Meir.
The immediate focus was on the European Central Bank's policy setting meeting later in the day as markets look for any signs it is worried about the appreciating euro.
The euro zone economy may be roaring ahead but a rapidly strengthening euro may see ECB President Mario Draghi pour cold water on the view the bank is speeding towards an interest rate hike.
"The ECB meeting on Thursday will be pivotal (for gold), as it could spark the euro (and gold) higher, especially if the central bank signals a policy shift in its wording," Meir said.
A stronger euro potentially boosts demand for gold by making dollar-priced bullion cheaper for European investors.
Spot gold is expected to gain more to $1,381 per ounce, as it has broken a resistance at $1,354, said Reuters technical analyst Wang Tao.
"We see a host of ongoing financial market drivers keeping the gold market tight and prices higher. Further weakness in the dollar and rising risks of a correction in equity markets, in particular, should be supportive," ANZ said in a research note.
Spot silver was up 0.2 percent at $17.60, after touching a more than four-month high at $17.69.
Platinum rose 0.3 percent to $1,015.24, after hitting its highest since March 2017 at $1,024.30.
Palladium dropped 0.1 percent to $1,109.220.
(Reporting by Nallur Sethuraman in Bengaluru; Editing by Joseph Radford and Subhranshu Sahu)