By Maytaal Angel
LONDON (Reuters) - Gold edged higher on Wednesday as the dollar dipped and simmering geopolitical tensions lent support, though the metal was largely unchanged for the month amid an increased chance of a U.S. interest rate rise next month.
The dollar edged lower versus a currency basket, with sterling recovering after a poll showed Britain's ruling Conservatives still leading ahead of elections next week. A previous projection indicated a hung parliament.
The dollar's losses were limited by U.S. economic data this week that supported the case for a Federal Reserve interest rate hike next month.
Higher rates reduce demand for non-interest bearing bullion and boost the U.S. currency, 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 quarter."
Spot gold edged up 0.4 percent to $1,267.6 per ounce at 12:20 EDT (1620 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 largely unchanged.
U.S. gold futures were up 0.36 percent at $1,266.70.
Traders see an 86.6 percent chance of a 25-basis-point rate hike at the Fed's June 13-14 policy meeting, Thomson Reuters data shows.
But some market participants said signs of softness in some economic data have raised questions about whether the U.S. central bank can keep to its plan to hike interest rates two more times this year and begin shrinking its balance sheet.
The investigations into alleged Russian meddling in the 2016 U.S. election and Moscow's possible collusion with members of Donald Trump's campaign also have clouded the prospect of a rate hike next month. Investors fear the probes could hamper the Trump administration's push for tax cuts and other 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 trading of precious metals, silver slipped 0.2 percent to $17.32 an ounce, though it was 0.8 percent higher for the month.
Platinum was up 1.2 percent at $945.5 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 1.6 percent at $817.9 an ounce.
(Additional reporting by Devika Krishna Kumar in New York; Vijaykumar Vedala in Bengaluru; Editing by David Evans and Paul Simao)
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