• Natural disasters and their aftereffects inflict trillions of dollars of damage on the economy
• Beyond immediate physical damages, hurricanes result in unemployment, inflation, higher insurance, and market volatility
• The rising intensity and frequency of natural disasters heightens the need for protective financial strategies like a Gold IRA

Hurricanes Devastate Savings

Hurricanes are among the most destructive natural disasters, leaving a trail of devastation – both physical and financial. Their damage wreaks havoc not only on the afflicted area, but on the national economy. As we face a growing number of extreme weather events, such as Hurricane Milton and Helene, understanding their economic impact has become essential to protecting one’s financial future.

A Growing Danger

Hurricanes and tropical storms have accounted for over 50% of the $1.79 trillion in damages from billion-dollar weather disasters since 1980.¹

2022 – Climate disasters cause almost $30 billion in losses²
2023 – Americans experienced 114 declared disasters³
2024 – $181.7 billion in GDP losses predicted if three major hurricanes make landfall⁴

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Local Economic Damage

The economic damage caused by hurricanes is vast and multifaceted. Direct costs from the storms include the immediate destruction of homes, infrastructure, and businesses. Hurricane Katrina caused over $200 billion in losses. Those losses include not only physical damage but also the broader financial aftershocks.

Joel Myers, AccuWeather’s founder and executive chairman, stated Milton is poised to become “one of the country’s most damaging and costly hurricanes.” Early estimates suggest economic losses could exceed $200 billion. That figure accounts for property damage, business closures, and significant infrastructure failures. All of which will have long-term consequences for the region.⁶

Hurricanes can result in mass unemployment. Following a major storm, many businesses are unable to reopen for days, weeks, or even months. Following Hurricane Katrina, for instance, over 230,000 individuals lost their jobs within ten months of the storm. This resulted in nearly $3 billion in lost wages. Helene could cause the loss of more than 100,000 jobs. ⁷

The repair and rebuilding efforts can stimulate economic activity. However, the net economic impact is still negative due to the massive losses and disruptions. In areas affected by back-to-back hurricanes like Milton and Helene, these losses are compounded. A prolonged period of economic stagnation can emerge.

Additionally, hurricanes disrupt key industries like agriculture and energy production. When Hurricane Ian hit Florida in 2022, the state’s citrus industry saw losses between $400 million and $700 million. ⁸

Similarly, the energy sector is vulnerable. Storms often force oil rigs and refineries to shut down temporarily. Chevron, for example, evacuated personnel at several Gulf of Mexico oil rigs in anticipation of Hurricane Milton. Potentially driving up energy costs nationwide.

National Impact

The economic impact of hurricanes often reverberates throughout the country. Hurricanes can negatively affect Gross Domestic Product (GDP). Particularly when they hit heavily populated or economically important regions. In 2005, the trio of storms—Katrina, Rita, and Wilma—lowered national GDP growth.

If Hurricane Milton’s damage exceeds $200 billion, the impact on third-quarter GDP could be significant. This is especially concerning because the storm comes right after Hurricane Helene. Helene has already affected states that contribute nearly 13% of the U.S. GDP.⁹

Increased Debt Burden

The cost of rebuilding after a hurricane is another financial burden that can last for years. Rebuilding infrastructure, homes, and businesses requires massive investments that can drive up public debt and insurance premiums.

Disaster relief is often classified as “emergency” spending. Therefore, it can circumvent normal budget caps and add directly to the national debt. It is rarely offset by cuts elsewhere in the budget. Between 2012 and 2021, Congress spent more than $400 billion outside discretionary spending caps on emergency relief. And this cost is projected to increase due to changing climate conditions. Relief further burdens the $35 trillion national debt. And in turn, threatens higher taxes and cuts to Social Security and Medicare. ¹⁰

Insurance Costs

The cost of insurance in disaster-prone areas is skyrocketing. Premiums have risen by over 30% since 2020, with storm-prone areas seeing hikes up to 50% or more. Some major insurance companies have even stopped issuing new policies in hurricane-prone states like Florida.¹¹

Increased Retiree Risks

For retirees, the financial risks of hurricanes can be particularly devastating. Many retirees move to states like Florida, Texas, and North Carolina. The very same areas that are in the path of hurricanes. Beyond the potential for property damage, hurricanes disrupt local economies, leading to rising costs for essentials like food, utilities, and insurance. These price hikes, combined with market volatility during and after a storm, can erode retirement savings. Additionally, if retirees need to tap into their savings earlier than planned to cover emergency expenses, they may face tax penalties and fees, further depleting their funds.

Conclusion

As hurricanes become more frequent and severe, understanding their economic impact is crucial. From massive property damage to lost jobs and ruined businesses, the financial toll of hurricanes is far-reaching. For those nearing or in retirement, the risks are even greater. In the aftermath of a natural disaster, when markets are volatile and inflation risks increase, holding a portion of your savings in physical gold can offer peace of mind and financial security. A Gold IRA can provide long term savings protection against the increasing number of disasters. Contact us today at 800-462-0071 to learn more.

Notes
1. https://www.climate.gov/news-features/blogs/beyond-data/2022-us-billion-dollar-weather-and-climate-disasters-historical
2. https://www.climate.gov/news-features/blogs/beyond-data/2022-us-billion-dollar-weather-and-climate-disasters-historical
3. https://www.investopedia.com/natural-disasters-impact-on-retirement-8704241
4. https://blog.implan.com/hurricane-season-2024#:~:text=The%202024%20hurricane%20season%20poses,job%20creation%20and%20economic%20growth.
5. https://licensing.visualcapitalist.com/wp-content/uploads/2024/10/Cost-of-Hurricanes_02-web.jpg
6. https://www.barrons.com/articles/hurricane-milton-economy-jobs-gdp-2c975ee3
7. https://www.pbs.org/newshour/show/hurricane-katrina-job-losses
8. https://citrusindustry.net/2022/10/28/hurricane-ian-citrus-damages-could-hit-675-million/
9. https://www.barrons.com/articles/hurricane-milton-economy-jobs-gdp-2c975ee3
10. https://www.romney.senate.gov/romney-braun-reintroduce-legislation-to-require-congress-to-budget-for-natural-disasters
11. https://www.eenews.net/articles/not-just-the-coastal-areas-insurers-hike-premiums-everywhere/

• A combination of crises is exposing the fragility of the American economy
• A port strike, Middle East war, and commercial real estate collapse could reignite inflation
• Growing global uncertainty surrounding the future health of the U.S. economy is sending gold prices to record highs

Crises Expose Economic Fragility

A confluence of crises is exposing just how fragile the U.S. economy is. These vulnerabilities could lead to serious long-term consequences. As geopolitical tensions rise, industries struggle, and inflation simmers, the economy may not be equipped to withstand the mounting pressures. These challenges threaten to destabilize markets and shake consumer confidence. Serious questions are arising about how best to protect your financial future.

Port Strike and the Inflation Threat

One such challenge is the threat of a massive dockworkers’ strike. It could further disrupt supply chains and reignite inflation. The International Longshoremen’s Association represents workers from 14 major ports along the U.S. East and Gulf Coasts. They have already initiated walkouts at ports handling over 68% of the country’s imports. This disruption could potentially cost the U.S. economy between $4.5 billion and $7.5 billion per day.¹

The strike threatens to reverse that progress the Federal Reserve has made against inflation. The ripple effects could mirror past crises. During a similar strike in 1977, inflation jumped from 0.3% to 0.5% within a month. It set back years of economic stabilization. “Increased shipping rates and transportation expenses will eventually flow into consumer prices, undermining the progress made on inflation,” said Matt Colyar, an economist at Moody’s Analytics. A similar scenario now could force the Fed to rethink its current path of interest rate cuts.²

Middle East Conflict and Oil Prices

The escalation of tensions in the Middle East adds another layer of instability. Particularly in global oil markets. Recent clashes between Israel and Iran have driven up oil prices by over 5%. That is the largest increase in nearly a year. With oil prices rising, the cost of goods, transportation, and services will inevitably follow suit. Inflationary concerns will intensify. Both businesses and consumers will feel the strain.

As geopolitical risks grow, investor confidence is faltering. The Financial Times summed up the sentiment of an economic panel at the UN General Assembly. They said, “The US is not an anchor for stability, but rather a risk to be hedged against. “³

Commercial Real Estate Collapse

On the home front, the commercial real estate (CRE) sector continues to implode. Office vacancies continue to swell. Mortgage defaults are skyrocketing. The delinquency rate for office mortgages spiked to 8.4% in September. The highest since the Great Recession. The retail and lodging sectors are also seeing rising delinquency rates. Brick-and-mortar stores are struggling to compete with e-commerce and hotels face lower demand.⁴

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The structural issues in these sectors go beyond interest rates. “We are seeing systemic weaknesses in office and retail that cannot be fixed by rate cuts,” said a report by Trepp, a firm that tracks CMBS data. The ongoing struggles in the commercial real estate market can ignite a banking crisis that wrecks the rest of the economy.⁶

The U.S. Becoming an Emerging Market?

All these factors are contributing to a growing sense of uncertainty about the future of the U.S. economy. Mark Rosenberg is co-head of the research firm GeoQuant. He warned that the U.S. is displaying characteristics typically associated with emerging markets. “The U.S. has become full of unpredictability—politically, socially, and economically.” Rosenberg noted that institutional instability and social polarization are making the U.S. resemble historically volatile nations like Russia, Turkey, or South Africa.⁷

The U.S. is no longer seen as the stable economic anchor it once was, with rising debt levels, political gridlock, and the risk of social unrest. Some governments and businesses are distancing themselves from reliance on American markets and technology. For example, European corporations like SAP and the Port of Hamburg have shifted away from U.S. technology platforms over concerns about “digital sovereignty” and the reliability of U.S. policies.

Conclusion

As the cracks in the economy continue to widen, one thing is becoming increasingly clear: uncertainty is jeopardizing future savings and investments. Inflation risks, rising debt, and political instability are shaking the financial system. Now may be the time to consider gold as a safe haven. Gold has long been regarded as a reliable store of value in times of crisis. Physical precious metals held in a Gold IRA can protect your portfolio from a degraded American economy. Contact us today at 800-462-0071 to learn more.

Notes
1. https://www.investopedia.com/us-dockworkers-strike-begins-what-it-means-for-the-economy-8721616
2. https://www.investopedia.com/us-dockworkers-strike-begins-what-it-means-for-the-economy-8721616
3. https://www.ft.com/content/5f83a3fc-74e6-4b00-a3cd-aa9a81bb21a7
4. https://wolfstreet.com/2024/09/30/cre-mess-not-letting-up-cmbs-delinquency-rates-jump-in-september-as-office-retail-and-lodging-deteriorate-further/
5. https://wolfstreet.com/2024/09/30/cre-mess-not-letting-up-cmbs-delinquency-rates-jump-in-september-as-office-retail-and-lodging-deteriorate-further/
6. https://wolfstreet.com/2024/09/30/cre-mess-not-letting-up-cmbs-delinquency-rates-jump-in-september-as-office-retail-and-lodging-deteriorate-further/
7. https://www.ft.com/content/5f83a3fc-74e6-4b00-a3cd-aa9a81bb21a7

• The value of the dollar continues to decline as it is challenged by the prospect of new currencies
• Shifting to a multi-polar global economy with a BRICS+ currency could have devastating effects on the dollar and the US
• You can defend and potentially grow your portfolio with a tax-advantaged Gold IRA.

Decline of the Dollar

As the dollar is rapidly losing value, the BRICS+ alliance is aiming to challenge its position as the world’s reserve currency. According to the Federal Reserve, the U.S. dollar has lost 97% of its purchasing power since 1913, leaving only 3% of its original value. What cost $1 in 1913 would now cost around $30. The global shift away from the dollar is positioning gold as the ultimate winner in this economic transformation. Owning physical precious metals offers a way to safeguard your finances from the consequences of this changing economic landscape.¹

Lynette Zang is CEO of Zang Enterprises. She stated that the dollar’s 3% purchasing power in 2024 could turn to zero in 2025. Zang pointed to the FRED’s chart showing the Purchasing Power of the Consumer Dollar in U.S. City Average, stating that even the Federal Reserve tells you the greenback can approach zero. Hyperinflation and job losses could result from such a drop.

“I believe with all my heart and everything that I know that we’ve already begun the transition to hyperinflation,” Zang said. “We’re going to see more borrowing, more money printing, more inflation because they have not killed that beast that they created and continue to create,” she stated.²

Growing BRICS+ Challenge

The BRICS+ Alliance began with four nations – Brazil, Russia, India, and China. South Africa then joined to add the ‘S’. Four additional countries joined in January 2024 with 24 others informally expressing interest in joining. And now another 23 countries applied to join before the BRICS+ alliance summit in October.

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The countries are all emerging economies from the ‘Global South’ that are eager to flee dollar dominance. They want to defend against a dollar that has been weaponized by sanctions. The alliance members also want to fortify their own economic interests as the world shifts from a single superpower, the US, to a more multi-polar world.

According to the Atlantic Council’s Dollar Dominance Meter, the global share of U.S. dollar reserves has fallen since 2002, the first full year of the BRICS alliance. Until recently, nearly 100 percent of oil trading was conducted in U.S. dollars; however, in 2023 one-fifth of oil trades were reportedly made using non-U.S. dollar currencies. The undermining of the petrodollar erodes one of the pillars of dollar support. ⁴

BRICS+ Summit

The next BRICS summit will take place in Russia on October 22nd. The summit agenda will focus on accelerating de-dollarization. The alliance is primed to announce a de-dollarization roadmap. There is speculation that they will unveil key developments in ditching the dollar for trade and reserves.

A new report states that the bloc is “expected to introduce a multicurrency platform along with a roadmap for a gold-backed BRICS trading currency.”

Among the expected announcements is the launch of a new BRICS Pay system. It would provide an alternative to SWIFT, a cross-border payment platform dominated by US dollars. Russia was barred from SWIFT after its Ukraine invasion. The new system will use local ‘digital dollars’ to simplify and speed up trade for members, free from Western influence.

There is even more anxiety surrounding the potential creation of a BRICS currency. Preparing for such a launch might explain why BRICS countries have been stockpiling gold reserves at a record pace in recent years. If it happens, not only would trade between members accelerate, but it will also effectively eliminate the need for the U.S. dollar on a global scale.

The ramifications of such a demand loss could be catastrophic to the U.S. economy. It would also weaken U.S. global influence and the standing of the dollar as the global reserve currency. According to the Atlantic Council, the U.S. dollar is used in approximately 88 percent of currency exchanges, and 59 percent of all foreign currency reserves held by central banks. That may all come to an end. Especially if a BRICS currency sparks the launch of other competing currencies. ⁵

Devalued Dollar, BRICS+, and Gold

The devalued dollar and the growing strength of the BRICS+ may give gold strong tailwinds. A devalued dollar leads to higher gold prices because when the dollar weakens, it takes more dollars to buy the same amount of gold, making gold more expensive.

And if a BRICS+ currency is backed by gold, as suggested by Putin, the demand for gold would surge, driving its price higher. As of now, the BRICS+ nations account for more than 20 percent of all the gold held in the world’s central banks. Russian, India, and China rank in the top 10 for central bank gold holdings. They are perfectly positioned to capitalize on a new gold-backed currency.

Conclusion

The world is experiencing a major economic shift in real time, with the dominance of the dollar fading as challengers like the BRICS+ alliance emerge. The full impact of the global economy moving toward a multi-currency system is still unknown, but the decline of the dollar is clearly linked to the rise of these new currencies. This change is accelerating, making it crucial to act now before it’s too late to safeguard your dollar-based savings. Gold is expected to reach record highs as part of this shift, and you can benefit by moving a portion of your portfolio into a tax-advantaged Gold IRA. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://money.visualcapitalist.com/buying-power-us-dollar-century/
2. https://www.kitco.com/news/article/2024-09-20/transition-hyperinflation-has-already-begun-feds-own-charts-show-dollars
3. https://asiatimes.com/2024/09/bric-by-bric-de-dollarization-only-a-matter-of-time/
4. https://www.nasdaq.com/articles/how-would-new-brics-currency-affect-us-dollar-updated-2024
5. https://www.nasdaq.com/articles/how-would-new-brics-currency-affect-us-dollar-updated-2024

• The Federal Reserve cut interest rates for the first time in 4 years by 50 bps
• There is concern the outsize interest rate cut is an indicator of deeper economic problems
• Analysts are taking the large rate cut as a sign to move into defensive safe haven assets, like physical gold or silver

Outsize Rate Cut Sparks Concern

The Federal Reserve sent shockwaves through financial markets with its first rate cut in four years. They slashed interest rates by a striking 0.5 percentage points. This aggressive move, twice the size of a typical rate cut, goes beyond a mere attempt to stimulate growth. It signals a much more profound concern within the central bank about the state of the U.S. economy. By taking this bold step, the Fed appears to be bracing for more than just a ‘soft landing’. Instead, it hints at underlying fears of a severe downturn, potentially even a looming recession.¹

Reading Between the Lines: Fear of Recession

Rate cuts are often seen as tools to spur economic activity. They can encourage borrowing, spending, and investment by making money cheaper. However, the magnitude of this cut shifts the narrative from economic support to economic survival.

The size of the rate cut has raised concerns about what the Fed sees on the horizon. While the central bank has refrained from explicitly stating its fear of a recession, its actions speak volumes. In times of economic uncertainty, a modest rate cut is often employed to maintain momentum and confidence.

By contrast, a half-percentage-point reduction could have other implications. The Fed may be worried about more than just a temporary slowdown. Issues like an overheated stock market and an explosive debt crisis pose existential economic problems. Without this larger intervention, the situation could deteriorate rapidly.

“Bond King” Jeff Gundlach stated that the interest rate cuts are too little, too late. “We are in a recession already,” according to him. ²

Several economic indicators have been flashing warning signs for months. Growth has been sluggish. Job cut announcements climbed 193% over the last month. Inflation has remained persistently above the Fed’s 2% target. And global economic uncertainties have been mounting. The U.S. manufacturing sector shrank for the 11th time in the past 12 months, indicating a decline in overall production and demand. Consumer confidence has weakened, as has business investment. All these factors could have contributed to a cautious outlook from the Fed and the need for more dramatic action.³

The Market’s Mixed Reaction

The markets initially responded to the rate cut with enthusiasm. Stocks surged as investors welcomed the prospect of cheaper borrowing costs and a more accommodative monetary policy. However, this euphoria was short-lived. As the implications of the Fed’s decision sank in, a sense of unease began to permeate the markets. The initial 400-point gain was lost by the end of the day.

Broader Implications Across Sectors

The ramifications of the Fed’s decision are expected to ripple through various sectors of the economy. On one hand, lower interest rates can provide a boost to industries such as housing and consumer spending. Mortgage rates often decline in tandem with Fed rate cuts. This can potentially spur home-buying activity. Similarly, consumers might be more inclined to take on debt for big-ticket purchases like cars and appliances. Increased consumer spending can support retail and manufacturing sectors.

However, the flip side of this scenario is the psychological impact on businesses and consumers. When the central bank takes such a dramatic step, it can be interpreted as a sign that all is not well. This perception can lead to a self-fulfilling prophecy. Businesses may cut back on investments and hiring. Consumers can tighten their belts in anticipation of tougher times ahead. And with the era of ultra-low mortgages unlikely to return, the housing market can stall. If this sentiment takes hold, it could deepen the very economic weakness the Fed is trying to prevent.

Chris Rupkey is the Chief Economist at FWDBONDS. He stated, “some investors might be nervous and wondering what the Fed sees and what they do not. The last two times the Fed cut interest rates the first time they did it by 50 bps as well, but it was an emergency inter-meeting cut because the outlook had darkened. There were recessions in fact.”⁴

Historically, the economy doesn’t do well after an initial 50-point cut. On Jan 3rd, 2001, the S&P 500 fell ~39% over the next 448 days. Unemployment rose another 2.1%. And then on September 18,2007, the S&P 500 fell ~54% over the next 372 days. And unemployment rose another 5.3%. ⁵

Moreover, the Fed’s aggressive rate cuts carry the risk of reigniting inflation. By making money cheaper to borrow, the central bank could inadvertently fuel rising prices, especially if demand rebounds unevenly. With economic growth already sluggish, this scenario creates the risk of stagflation—a situation where inflation rises even as economic growth stagnates. Stagflation can be particularly damaging because it limits the Fed’s policy options. If inflation picks up while growth remains weak, the Fed could find itself in a bind, struggling to balance the dual threats of rising prices and anemic economic activity.

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Conclusion: The Shadow of Uncertainty

The Federal Reserve’s decision to cut interest rates by 0.5 percentage points can be seen as more than just a monetary policy adjustment. It may be a statement of concern. Is the central bank aware of economic risks that we aren’t? The fear of a recession looms larger now than it did before the Fed’s announcement. Businesses, consumers, and investors are left to grapple with what might come next. You can protect your portfolio with safe haven assets like physical gold or silver, especially in a tax-advantaged Gold IRA. Contact us today at 800-462-0071 to learn how.

 

Notes:

1. https://www.cnbc.com/2024/09/17/stock-market-today-live-updates.html
2. https://www.businessinsider.com/fed-rate-cuts-recession-layoffs-job-market-outlook-jeff-gundlach-2024-9
3. https://www.businessinsider.com/fed-rate-cuts-recession-layoffs-job-market-outlook-jeff-gundlach-2024-9
4. https://finance.yahoo.com/news/live/stock-market-today-federal-reserve-cuts-interest-rates-by-half-a-percentage-point-stocks-rise-180501561.html
5. https://x.com/tiffany_varty/status/1828137294370611632
6. https://pwonlyias.com/current-affairs/us-fed-rate-cut/

• Gold has been posting record breaking returns in 2024, outperforming the S&P 500
• Analysts think that whether Trump or Harris wins, the price of gold will go up
• Now is opportune time to secure your funds with physical gold before the election

Gold’s Rise to Continue

As the 2024 U.S. presidential election looms, financial markets are bracing for shifts in fiscal and economic policy. But one asset is expected to benefit no matter who wins—gold. The precious metal has already demonstrated remarkable performance this year. It has risen about 21% year-to-date and reaching an all-time high of $2,531.70 in August. Gold has outperformed the S&P 500 index, which is up around 15%. With a combination of economic factors and political uncertainty on the horizon, gold is well-positioned to continue its upward trend.¹

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Bullish Factors Supporting Gold’s Rise

Several key factors are already fueling gold’s bullish trajectory. First, the anticipated cuts in interest rates are making gold a more attractive investment. Lower rates reduce the appeal of yield-bearing assets like bonds. This drives more investors toward safe-haven assets like gold. Commerzbank Research predicts as many as six rate cuts between now and mid-2025, further boosting gold’s potential.³

Another major driver is the strong demand from central banks. In 2023, global central banks purchased over 1,000 tons of gold as they sought to diversify away from the U.S. dollar. The People’s Bank of China has led the charge, engaging in an 18-month buying spree. According to the World Gold Council, 2024 began with 290 tons of net gold purchases in the first quarter alone. That is one of the strongest quarters on record.⁴

Geopolitical risks are also playing a role. The ongoing war between Russia and Ukraine, along with the Middle East conflict, is fueling instability. They are adding to the unpredictability in global markets.

A looming recession and potential market crash are fueling gold demand as well. “Black Swan” investor Mark Spitznagel sees a recession hitting. It will occur after the biggest making bubble “we’ve ever seen” bursts. ⁵

How Each Candidate Could Push Gold Prices Higher

The election itself is adding to economic uncertainty, and, in turn, the demand for safe haven gold. There is intense unease over the unknown direction of future fiscal policy.

Whoever wins is expected to bring policies that can push gold prices higher. Harris and Trump both hold the potential to blow up deficits and reignite inflation.

A Harris win in likely to mean a shift to more progressive policies. They could include higher business taxes and increased regulation. She is also expected to continue, or increase, the high-spending approach of the Biden administration. The U.S. government has already surpassed borrowing $2 trillion annually, and that figure is expected to reach $2.8 trillion by 2034. A Harris administration has little chance of reducing the deficit. As a result, the dollar would weaken, and growth would stagnate. Both of which historically lead to higher gold prices.⁶

If Donald Trump returns to office, his policies could also fuel a bullish gold market. Trump is expected to push for tax cuts, but without credible plans to reduce spending, these cuts could exacerbate the deficit. Additionally, Trump has a history of engaging in trade wars. They could reignite geopolitical tensions and uncertainties in the global market. His tariff threats may speed up the pace of de-dollarization. Countries would seek to protect their economies from a weaponized dollar. Furthermore, if Trump pressures the Federal Reserve to maintain low interest rates, the dollar could weaken. And as weak dollar tends to result in higher gold prices.

Conclusion

Both candidates are expected to have policies that could inflate deficits and create economic or geopolitical uncertainty. Gold stands out as a reliable hedge against this instability. As Naira Metrics notes, investors looking to protect their funds would do well to avoid risky assets. And gold offers a safe alternative.⁷

Ole Hansen is the Head of Commodity Strategy at Saxo Bank. He sums up gold’s future outlook. “Investors are likely to continue viewing gold as a hedge against the uncertainties posed by both economic and policy forces.” Over the past decade, gold has provided an average annual return of 8.4% in U.S. dollars, consistently outpacing inflation. TD Securities predicts gold can hit $2,700 per ounce in the next few quarters. American Precious Metals Exchange forecasts gold could break $3,000 in 2025. ⁸

As we move closer to the 2024 election, the case for gold only strengthens. Whether Kamala Harris or Donald Trump wins, both candidates will bring policies that could further drive demand for gold. To learn more about how physical precious metals can protect your retirement, especially when held in a Gold IRA, contact us today at 800-461-0071.

 

Notes

1. https://fortune.com/2024/08/17/gold-price-outlook-wall-street-forecasts-3000-fed-rate-cuts-central-banks-recession/
2. https://www.telegraph.co.uk/business/2024/08/28/gold-soaring-on-fears-economic-catastrophe-kamala-harris/?ICID=continue_without_subscribing_reg_first
3. https://fortune.com/2024/08/17/gold-price-outlook-wall-street-forecasts-3000-fed-rate-cuts-central-banks-recession/
4. https://fortune.com/2024/08/17/gold-price-outlook-wall-street-forecasts-3000-fed-rate-cuts-central-banks-recession/
5. https://fortune.com/2024/08/17/gold-price-outlook-wall-street-forecasts-3000-fed-rate-cuts-central-banks-recession/
6. https://www.telegraph.co.uk/business/2024/08/28/gold-soaring-on-fears-economic-catastrophe-kamala-harris/
7. https://nairametrics.com/2024/09/06/gold-stocks-and-dollar-octas-guide-to-navigating-market-volatility-during-election-time/
8. https://www.kitco.com/news/article/2024-09-10/trump-vs-harris-gold-wins-either-way-saxo-banks-hansen

• With almost $1 trillion in debt due this year, commercial real estate is being called a ‘ticking time bomb’
• The primary holders of CRE debt, more than 200 regional banks are in danger of collapse
• Physical precious metals, especially those held in a Gold IRA, can protect the value of your savings from the impact of a commercial real estate meltdown

Commercial Real Estate Risk Skyrockets

Commercial real estate, once seen as the bedrock of the American economy, is now being called a “ticking time bomb” as almost $1 trillion in loans come due this year. The collapse of the CRE sector would send shockwaves through the economy that could devastate savings.

The market is still reeling from record low vacancy rates and devalued buildings. Lower valuations make it harder for landlords to borrow money. Banks and property owners are now accepting that their buildings may never recover their pre-pandemic value. Fitch Ratings said office values have dropped 35% from their peak. Capital Economics predicted prices could drop another 20%. ¹

Faced with this reality, office buildings are being sold off at staggering losses. One midtown Manhattan office building sold at a 97.5% discount in July.²

According to the Mortgage Bankers Association, about $930 billion in commercial real estate loans will come due this year. Commercial mortgages are typically set up with a balloon payment. This way, property owners only must pay the interest before the major payment comes due at the end of the loan. Typically, when rates were low, owners would just refinance and push the balloon payment down the road. But with interest rates being held higher for longer, that option is no longer feasible. Commercial real estate lending declined 47% last year. ³

At the same time, operating expenses have gone up dramatically. Owners are choosing to simply not pay back their loans instead of saving their properties with their own cash. About $95 billion of the US properties are in distress or at risk of becoming so. The office sector accounted for two-thirds of newly delinquent loans. In July, $1.9 billion in office loans became newly delinquent. ⁴

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Scott Rechler is the CEO of New York landlord RXR. He called the crisis a slow moving storm and said, “So at some point or another, the day of reckoning needs to come,” he added. “I think it’s here.”⁶

Rate Cuts Too Little, Too Late

The signal for lower interest rates may be too little, too late for the drowning commercial real estate sector. Fed Chair Powel says commercial real estate risk “will be with us for some time, probably for years.”

“Excessive exposure to commercial real estate remains a ticking time bomb within the banking system,” said Rep. Ritchie Torres (D-N.Y.). “An interest rate cut might ease the symptoms, but it will not cure the disease itself. ‘Extend and pretend’ can delay a crisis but it cannot make it magically disappear.”⁷

There is bipartisan support to make it easier to convert office buildings into housing. Solve two problems at once. However, the process is slow and expensive and not all commercial spaces can be converted.

Bond & Bank Worries

A secondary crisis is looming in the bond market. Many of the floating-rate loans were bundled into the $80 billion commercial real estate bonds and sold to investors. This may raise a systemic risk for banks issuing the bonds.

John Devaney is the CEO of the United Capital Markets hedge fund. He has the dubious distinction of being one of Time Magazine’s 25 people to blame for the 2008 mortgage crisis. He stated commercial real estate is a “slow moving train wreck” and the commercial bond market is in shambles. “The CMBS market is actually a disaster right now. Many things are unfolding right now and the bond pricing is telling us things are very, very bad,” the United Capital CEO said. He warned the collapse could ruin large downtown area that depend on tax revenue from office spaces. ⁸

The demise of the sector spells trouble for small and medium-sized commercial banks. They are being classified as “stressed.” Small banks have CRE loans values exceeding 158% of their risk-based capital. Midsize banks are at 228%. ⁹

A recent report stated that 282 of 4,000 US banks are on the verge of collapse. This is due to the double hit of maturing CRE loans and losses resulting from high interest rates. The same things that caused the catastrophic failures of Silicon Valley Bank, Signature Bank and First Republic Bank. Higher for longer interest rates have exposed the vulnerability of banks worldwide according to the International Monetary Fund.

Banking System Risks

If multiple banks try to raise capital at the same time, it could destabilize the banking system, similar to what happened in March 2023. Market volatility might lead investors to demand higher yields, driving up borrowing costs. A new recession could worsen the situation, causing widespread asset devaluation. Significant losses in commercial real estate loans could leave hundreds of small and midsize banks undercapitalized, with larger banks also at risk.

Conclusion

The growing risk factors facing commercial real estate are raising questions about how much longer the sector can go on. Insiders agree that a reckoning is on the horizon, the results of which could be catastrophic and ripple throughout the entire economy. The time to prepare is before the crisis becomes a reality. Physical precious metals, especially those held in a Gold IRA, can protect the value of your savings from the impact of a commercial real estate meltdown. Contact us today at 800-462-0071 to learn more about how to secure your funds.

Notes:

1. https://markets.businessinsider.com/news/bonds/real-estate-crash-commercial-property-prices-investing-mortgage-backed-securities-2024-8
2. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
3. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
4. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
5. https://www.linkedin.com/posts/james-w-stuff_delinquency-office-loans-activity-7228905623340376064-eF_g/
6. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
7. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
8. https://markets.businessinsider.com/news/bonds/real-estate-crash-commercial-property-prices-investing-mortgage-backed-securities-2024-8
9. https://www.noradarealestate.com/blog/commercial-real-estate-crash-could-trigger-economic-tsunami/