* 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 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 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.
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, tracking the greenback against a basket of six currencies, was down 0.3%, but was on track for a fourth month of gains.
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 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 rose 0.3% to $14.56 an ounce but looked poised to register a fourth consecutive monthly loss.
Platinum fell 0.3% at $789 and was on track for its biggest monthly loss since November 2015, down 10%. (Reporting by Eileen Soreng, Diti Pujara and Harshith Aranya in Bengaluru Editing by David Gregorio and Bernadette Baum)