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Here's the passage you're looking for. The Great Hunt, Ch. 19 Beneath the Dagger, pg. 292 (paperback) "It was the chest that held the Horn of Valere. His hand touched something else, on the lid. The dagger, barebladed. In the dark, his eyes widened. Remembering what it had done to Mat, he...

I just read that part a few days ago and to my (usually flawed) knowledge, he did *not* use a cloth. He put it in his belt, layered away from his body by his clothing. He didn't actually hold it for more than a few seconds when first picking it up and then putting it in the chest.