×

PRECIOUS-Gold steady as investors weigh political risks against U.S rate rise

* Palladium heads for first monthly decline since December

* Spot gold may break support at $1,257 per ounce - technicals

* Silver falls after hitting one-month high on Tuesday

(Updates prices, adds quote, further details) May 31 (Reuters) - Gold held steady on Wednesday as investors weighed the increasing risk of a U.S. interest rate increase next month against the simmering geopolitical tensions that have been supporting bullion. The dollar recouped its losses in the previous session, rising strongly against sterling after a projection by polling company YouGov showed British Prime Minister Theresa May could lose an overall majority in parliament in a June 8 election. The projection raised the prospect of political deadlock just as formal Brexit talks begin. Also helping the dollar, U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded, pointing to improving domestic demand that could allow the Fed to raise interest rates next month. "The market has been overenthusiastic in terms of the weakness (seen). 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 quarter."

Spot gold edged up 0.2 percent at $1,264.83 per ounce

at 1108 GMT after slipping earlier in the day. 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 0.4 percent.

U.S. gold futures were up 0.2 percent at $1,264.

U.S. interest rate futures on Tuesday indicated a nearly 89 percent chance of a June rate rise, according to CME Group's FedWatch tool. Higher rates would reduce the demand for non-interest bearing bullion as well as boosting the U.S. dollar, making dollar-priced gold costlier for non-U.S. investors. Political tensions in the United States and Europe continue to support gold and have prevented any major losses for the metal, said Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank.

Spot gold may break a support at $1,257 per ounce and

fall to the next support at $1,245, according to Reuters technical analyst Wang Tao.

In other precious metals, silver slipped 0.4 percent

to $17.30 an ounce though it was 0.6 percent higher for the month.

Platinum was up 0.6 percent at $939 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 0.1 percent at $805.80 an ounce and

was on track for a monthly decline of 2 percent, its first monthly decline this year.

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