LONDON/BENGALURU (Jan 31): Gold climbed on Tuesday to its highest in nearly a week, as tough travel restrictions by U.S. President Donald Trump unnerved markets and prompted investors to buy bullion as risk insurance.

Spot gold gained 0.8% to US$1,204.76 an ounce by 1320 GMT, its highest since Jan 25. U.S. gold futures rose by 0.9% to US$1,203.90.

The dollar and stock markets fell in the wake of Trump's sacking of top U.S. government lawyer Sally Yates, who refused to defend his stringent curbs on travel from seven Muslim-majority nations. 

"Clearly Trump remains the main driver for gold. He has really turned from being a bit of a foe of gold to a friend with the uncertainty of his policies," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

"We're not getting any news on fiscal spending and tax cuts.

Instead, we're hearing about protectionism and a tough stance on immigration. That's unnerving the market."

A weaker dollar supported bullion, though traders were turning their attention to a two-day Federal Reserve meeting starting later in the day, hoping for clues on the outlook for U.S. interest rates.

Higher rates could strengthen the U.S. currency, making dollar-denominated gold more expensive for holders of other currencies, potentially dampening demand.

The dollar index, which measures the greenback against a basket of currencies, was down about half a percent and on track for a monthly fall of more than 2% — its
worst start to the year since the financial crisis.  

"There could be some growth challenges if the (travel) ban is prolonged. So the current risk aversion (driving gold markets) comes as no surprise," said OCBC analyst Barnabas Gan.

MKS PAMP Group trader Sam Laughlin, meanwhile, said that the firing of Sally Yates provided the impetus for gold to break through US$1,200.

Commerzbank said in a note that gold was also finding support from expectation of higher euro zone inflation.

Data from the European statistics office on Tuesday showed that euro zone inflation jumped by more than expected in January, boosted by a surge in energy prices as economic growth accelerated and unemployment fell to its lowest in more than seven years. 

In other precious metals spot silver added 1.5% to US$17.36 an ounce.

"Silver is holding up reasonablly well. It's been a better performer this month, albeit by a couple of percent, relative to gold," Saxo Bank's Hansen said.

This was mainly helped by gains in base metals, which have prompted funds to take long positions since silver also has industrial properties, Hansen added.

Platinum rose 0.7% to US$992.20, while palladium was up 1.5% at US$750.90.