Gold swung between gains and losses as traders mulled the Federal Reserve’s interest-rate path after a surprise hike by Australia’s central bank.

The Reserve Bank of Australia unexpectedly raised its key rate and kept the door open to further hikes. Treasury yields rose alongside a strengthening dollar, keeping bullion’s upside in check. Traders have been increasingly betting the US central bank will hold rates steady at its June meeting, while keeping the option for hikes later open.

“After many traders were surprised by the hawkish rate rise by the RBA, fears are growing that the Fed might need to do a lot more tightening,” said Ed Moya, senior market analyst at Oanda.

Eoin Treacy's view

The RBA’s willingness to continue raising rates is being shaped by concerns inflation is stickier than they hoped. The jump in the minimum wage is worrisome since it puts upward pressure on wage demands across the spectrum and that tends to also be sticky. 

The S&P/ASX200 has been in a choppy uptrend for most of the last decade and has spent the last two years ranging above the 2007 peak. There have been several occasions when the Index dropped below the 1000-day MA but each of these has proven to be an attractive entry opportunity.

It is now testing the 200-day MA and there is scope for some additional weakness as interest rate hikes and slowing Chinese demand for exports weigh.

Gold in Australian Dollars is pausing following a steep breakout in March. If the breakout is to be sustained, it will hold the move above A$2800.