Will DOGE Trigger a CRE Crisis?

The combination of continued growth concerns in the US and the new fiscal initiatives in the EU saw the USD fall every day last week versus the G-7 currency pairs.

And with the USD falling and Wall Street posting its largest weekly loss in six months, physical Gold and Silver prices were well bid.

For the week, Gold priced in USD rose by 1.9% to close at $2910.00. To underscore the yellow metal’s bullish momentum, USD Gold has not posted a weekly close below its 30-day moving average line since January 3rd.

Gold denominated in AUD was tempered by the 1.6% rally in the AUD but still picked up $15.00 for a fractional gain for the week to close at $4617.00.

Physical Silver prices made a material advance higher last week and outperformed Gold.

Physical Silver priced in USD rallied 4.4% to close at $32.55, while AUD based Silver traded higher every day last week to post a 2.9% gain to finish the week at $51.55.

As illustrated on chart 1, the Gold versus Silver ratio moved 2.5% in the favor of Silver to close at 89.45.

That means it takes 89.25 ounces of Silver to equal the price of one ounce of Gold. That ratio was close to 92.00 at the beginning of last week.

Many market commentators consider March 2023 the beginning of the protracted rally we have seen in Gold and Silver.

You will recall that in early March of 2023, Silicon Valley Bank, Signature Bank and Credit Swisse all hit the wall and were absorbed into Citi Group and UBS, respectively.

One of the problems these banks all shared was their negative cashflow and defaults on Commerical Real Estate (CRE) loans.

And while the CRE solvency predicament has been simmering in the background for the last two years, potential initiatives from the US Department of Government Efficiency (DOGE) could bring the crisis back into focus.

The DOGE people in the Trump administration are considering shedding a big portion of the massive office space that the government owns or leases nationwide, including selling two-thirds of the office space the government owns and terminating three-quarters of the leased office space.

Much of this office space is vacant or underused and poorly maintained due to lack of funding, according to the Government Services Administration (GSA), which manages buildings, offices and equipment for the government.

A recent report from DOGE, found that not one of the headquarters for any major agency in Washington is more than half full, GSA-owned buildings in Washington average about a 12% occupancy rate, and the government owns more than 7,500 vacant buildings across the country of which more than 2,200 are partially empty.

As shown on Chart 2, the office sector of CRE is already in a depression, with default rates that exceed those during the global financial crisis.

Putting additional inventory on the market for sale is going to weigh on the already collapsed prices of older office buildings; of which prices of 50-70% below the last sale before the pandemic are now common.

And terminating leases is going to stress office buildings, their landlords, and their lenders even more, likely entailing more defaults and foreclosure sales.

For a bank with non-performing loans in the CRE sector, this is very bitter medicine to alleviate government waste.

Here is the bottom line:

The office sector of CRE is in a depression, and office debt just keeps getting worse.

The delinquency rate of office mortgages across the US that have been securitized into commercial mortgage-backed securities (CMBS) spiked to a record 11% at the end of 2024, blowing by the Financial Crisis peak.

These CMBS defaults have exploded over the past 24 months from an everything-is-just-fine 1.6% at the end of 2022, to a disastrous 11.0% at the end of 2024.

If a wave of CRE based defaults triggers an increase of systemic risk in the banking sector, the precious metals complex could react quickly to price in the additional risk and uncertainty.

As we mentioned earlier, the last time a group of banks hit the wall was in March of 2023.

Since March of 2023, the price of physical Gold has rallied by 64% and the price of Silver has increased by 58%

Physical Gold and Silver are secure assets, free of debt and traditionally the purest form of money.

For investors looking to build wealth over the longer-term time horizon, now is the time to consider making hard assets the cornerstone of your investment strategy.

Chart 3 – Gold AUD

Chart 4 – Silver AUD

This publication has been prepared for the GBA Group Companies. It is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. Any prices, quotes or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.