* 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 .DXY touched three-year lows after Mnuchin said a softer dollar was good for the United States. decline in the dollar makes commodities priced in the greenback cheaper for buyers using other currencies.
Spot gold XAU= was up 1.4 percent $1,360.23 an ounce at 2:05 p.m. EST (1905 GMT). U.S. gold futures GCcv1 for February delivery settled up $19.60, 1.5 percent, at $1,356.30 per ounce.
Silver XAG= 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 XPT= added 0.8 percent to $1,014.50 an ounce after touching $1,021.20, the highest since Sept. 8, while palladium XPD= rose 1.8 percent to $1,111.10.