PRECIOUS-Gold surges to seven-week high as Trump tariff threat rattles markets

* Trump vows tariffs on Mexico unless illegal immigration
ends
* Platinum heads for biggest monthly loss since 2015
* Palladium sees biggest one-day percentage decline since
May 15

(Updates prices and market activity)
By Eileen Soreng
May 31 (Reuters) - Gold climbed to a seven-week peak on
Friday and was headed for its first monthly gain in four months,
as investors sought the safe haven investment after U.S.
President Donald Trump threatened tariffs on imports from
Mexico, which fed fears of a global downturn.
Spot gold XAU= jumped 1.3% to $1,305.17 an ounce by 1:51
p.m. ET (1751 GMT), having hit its highest since April 11 at
$1,306.64.
Bullion has risen by about 1.7% so far this month and 1.6%
for the week.
U.S. gold futures GCcv1 settled up 1.9% at $1,311.1.
"People are doing fear trade now and running towards gold,"
said Michael Matousek, head trader at U.S. Global Investors. He
noted investors were unsure of what Trump planned to do.
"That tells you need to have higher allocation to gold in
your portfolios."
Mexico's president on Friday urged Trump to back down from
threats to impose tariffs on its exports to the United States,
in a dispute over migration that could create a major economic
shock for Mexico. Wall Street's main equity indexes fell sharply, hit by fears
that Trump's threat could prove the trigger that pushes the
world's largest economy into recession. .N
U.S. carmakers and manufacturers were among the worst hit,
having built vehicles in Mexico for years, taking advantage of
its cheap labour, trade deals and proximity to the United
States. "The dollar index is still in the 98-area, which is normally
a headwind for gold but because of the extreme stock tumbling,
it seems to be ignoring the normal headwind," said George Gero,
managing director at RBC Wealth Management.
"Gold is probably going to stay in this $1,300 area as long
as the selloff (in equities) continues."
The dollar index .DXY , tracking the greenback against a
basket of six currencies, was down 0.3%, but was on track for a
fourth month of gains. USD/
Meanwhile, expectations of a cut in interest rates by the
U.S. Federal Reserve increased after recent weak economic
readings from the U.S. added to concerns raised by the prolonged
U.S.-China trade dispute. Lower interest rates would support gold because they reduce
the opportunity cost of holding non-yielding bullion.
Elsewhere, concerns in the auto sector rubbed off on
palladium XPD= prices which marked its worst day since May 15.
The emissions reducing auto-catalyst metal slipped 2.5% to
$1,333.01 per ounce and was down about 3.9% for the month.
Silver XAG= rose 0.3% to $14.56 an ounce but looked poised
to register a fourth consecutive monthly loss.
Platinum XPT= fell 0.3% at $789 and was on track for its
biggest monthly loss since November 2015, down 10%.