Gold edged lower on Thursday but held near the five-week highs hit in the previous session, as expectations that the US Federal Reserve will hike interest rates this month weighed on prices but geopolitical concerns provided some support.

Spot gold was down 0.2 per cent at $1,266.08 per ounce at 0421 GMT. On Wednesday, it touched a session high of $1,273.74 an ounce, its strongest since April 25.

US gold futures fell 0.5 per cent to $1,265 an ounce.

FOMC meet

“Market participants are cautious ahead of the Federal Open Market Committee meeting next month... There is a lot of uncertainty on what the Fed will do,” said Hareesh V, head of research at Geofin Comtrade Ltd.

San Francisco Federal Reserve Bank President John C. Williams said on Wednesday that three rate increases are most likely this year.

However, some recent soft US economic data has raised questions whether the Fed will stay with that plan.

“Continued geopolitical concerns and jitters across global equities are supporting the price action currently,” Sam Laughlin, senior precious metals trader at MKS, said in a note.

“However investors are likely to hold off instigating fresh positioning until we are through US jobs data on Thursday (ADP employment) and Friday (non-farm payrolls).”

Positive payroll data from the United States could mean the Fed will raise rates as expected at its June 13-14 meeting.

Traders believe there is an 87 per cent chance of a rate rise, according to CME Group's FedWatch tool.

UK election

In Britain, Prime Minister Theresa May could lose control of the parliament in the June 8 election, according to a projection by polling company YouGov, raising the prospect of political turmoil just as formal talks for the country to leave the European Union begin.

Spot gold may retrace to $1,257 per ounce, as it failed to break a resistance at $1,272, according to Reuters technical analyst Wang Tao.

President Donald Trump's decision on Thursday on whether the United States will continue to be part of the global pact to fight climate change will also be keenly watched, analysts said.

“A withdrawal in itself shouldn't be bearish for the U.S. dollar in isolation; rather it is the intent that it signals,” said Jeffrey Halley, a senior market analyst at OANDA.

“In this case a more isolationist stance from literally, the rest of the world's view. This could see that geopolitical temperature gauge rise again, taking gold with it.”

Among other precious metals, silver fell 0.1 per cent to $17.27 an ounce. Platinum was unchanged at $943.50 an ounce. Palladium , which hit a four-week high at $821.90 an ounce on Wednesday, was last seen down 0.4 per cent at $813.50

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