May 31, 2017 / 10:34 AM / in a year

PRECIOUS-Gold steady edges up as dollar dips, but looming U.S rate hike caps gains

    * Palladium heads for first monthly decline since December
    * Silver falls after hitting one-month high on Tuesday

 (Recasts, updates prices)
    By Maytaal Angel
    LONDON, May 31 (Reuters) - Gold edged higher on Wednesday as
the dollar dipped and simmering geopolitical tensions lent
support, though the metal was heading for its first monthly drop
since December amid an increased chance of a U.S. interest rate
rise next month.
    The dollar dipped versus a currency basket, with sterling
recovering after a poll showed the Britain's ruling Conservative
party still in the lead, overriding a previous projection of a
hung parliament in elections next week.       
    Still the dollar's losses were limited given U.S. consumer
spending and inflation data published on Tuesday which pointed
to improved domestic demand that should allow the Federal
Reserve to raise interest rates next month.             
    Higher rates reduce demand for non-interest bearing bullion
and boost the U.S. dollar, making dollar-priced gold costlier
for non-U.S. investors.
    "The market has been over-enthusiastic in terms of the
weakness (seen in gold). Once the rate hike happens, people will
focus on political uncertainty and on the physical support (for
gold)," said Hamza Khan, head of commodities strategy at ING. 
    "Fundamentally we favour the upside. We see prices at $1,350
(an ounce) for the third quarter, and $1,250 for the second
    Spot gold        edged up 0.2 percent to $1,264.81 per ounce
at 1346 GMT. It closed 0.3 percent lower on Tuesday after rising
to a one-month high of $1,270.47. For the month, bullion is down
0.2 percent.
    U.S. gold futures         were up 0.2 percent at $1,264.50.
    Traders see an 86.6 percent chance of a quarter-point rate
hike at the Fed's June meeting, Thomson Reuters data shows.
    But some market participants say signs of softness in some
economic data have raised questions about whether the Fed can
hike interest rates two more times this year and begin shrinking
its balance sheet.
    Another factor raising questions about rate hikes this year
is the investigations into President Donald Trump's ties with
Russia, which investors fear will hamper his administration's
progress on tax cuts and other promised stimulus measures. 
    "Precious metals remain supported on the back of a weaker
dollar overnight. The range is likely to hold ahead of Friday’s
(U.S.) employment numbers," KITCO METALS INC said in a note. 
    In other precious metals, silver        slipped 0.4 percent
to $17.29 an ounce though was 0.4 percent higher for the month.
    Platinum        was up 0.9 percent at $939.74 an ounce after
falling 1.9 percent in the previous session in its biggest
one-day percentage loss in nearly a month.  
    Palladium        was up 0.8 percent at $811.75 an ounce and
on track for a monthly decline of 1.3 percent, its first monthly
drop this year.

 (Additional reporting by Vijaykumar Vedala in Bengaluru;
editing by David Clarke and David Evans)
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