Tuesday, May 26, 2009

$101B in Treasury Auctions Start Today: Gold to Fall, Then to Rise

US Treasury Auctions start today. These auctions used to be rock solid, but with the current crises, and a crises of confidence in the USD, there have been hiccups recently with foreigners not so keen to buy any more USD. Of particular worry are the longer term notes.


Tuesday: 2-year notes
Wednesday: 5-year notes
Thursday: 7-year notes

Total: $101B.

Historically, the 2-year notes have pretty much always sold well so no major surprises or very negative effects are expected with those. The real concern is with longer notes. If the auctions do not do well it signals a lack of confidence in the dollar. Either the USD will suffer, possibly quite badly, or interest rates have to rise signifcantly. Perhaps this is what is causing the lift in the US today (a preventive measure), and the decline in gold prices. Korean missile launches are also great for propping up the dollar in the short term.

Interest rates are not expected to rise any time soon. If the auctions are shaky, expect the USD to continue tumbling late this week and next week, with a corresponding rise in the price of gold, oil, and commodities.

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