Yesterday, the United States' inflation figure (CPI) for May was announced. The expected inflation rate was 3.4%, the same as the previous month, but the figure came in at 3.3%. This indicates a decrease in inflation, which might provide room for interest rate cuts.

Jerome Powell stated during a press conference that the United States is making modest progress towards the inflation target of 2%. Due to this news, the market expects two interest rate cuts this year: the first on September 18 and the second on December 18. Currently, the interest rate stands at 5.25 - 5.50%, but the market anticipates a decline to 4.75 - 5.00%.

Interest rate cuts are theoretically favorable for many investments, including precious metals. As the interest rate on government bonds falls, investors will seek higher returns in other categories.

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Pimco (Pacific Investment Management Co.), a major American asset manager, warns of more bankruptcies among US regional banks due to problematic commercial real estate loans on their balance sheets.

According to John Murray, head of Pimco's global private commercial real estate team, the real wave of problems is just beginning, especially for lenders to shopping centers and offices. The uncertainty about interest rate cuts by the Federal Reserve has increased challenges for the sector, with high borrowing costs depressing valuations and causing defaults. This is because they have issued many loans for stores and offices that are now difficult to repay.

After the pandemic, more and more people started working from home. As a result, large offices have often become redundant. The demand for office buildings has plummeted, and so has their value. In addition, people have increasingly shopped online in recent years instead of going to physical stores. As a result, physical stores have become less necessary and sometimes even redundant.

Look around you, or think about your own experiences. Do you also see more people working from home and shopping online?

Regional banks in the US feel the problems the most, with a high exposure to commercial real estate, which is now often worth much less than at its peak. This has worried investors since the collapse of several banks last year (I also wrote about this in my newsletter on February 8). For example, New York Community Bancorp reduced its dividend and increased provisions for bad loans, and US Bancorp did the same in the first quarter. Shares of Axos Financial Inc. plummeted after criticism of their real estate loans.

Regional banks were the only lenders not to demand additional deposits from commercial real estate borrowers, highlighting their vulnerability. This year, an estimated $441 billion wall of maturing real estate debt awaits.

Customers of these regional banks may lose confidence in their bank after reading such news or disappointing quarterly results, for example. This can lead them to quickly move their money elsewhere, potentially causing a bank run. A bank run can happen very quickly. After the bankruptcy of Silicon Valley Bank in March 2023, the gold price rose by 10% within 10 days.

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On June 9, Saudi Arabia did not renew the 50-year-old Petrodollar agreement with the United States. This agreement, signed in 1974, three years after the abolition of the gold standard, provided for US military and economic support to Saudi Arabia, on the condition that Saudi Arabia sold its oil in US dollars.

Now that the agreement has not been renewed, Saudi Arabia can sell its oil in any currency it wishes. This will put pressure on the export and demand for the dollar. As a result, the Federal Reserve (FED) may have to print more money, which could lead to significant inflation and be favorable for gold.

I will keep you informed of this potential 'anti-dollar' trend worldwide. The dollar index stands at 104 today. More on this in the upcoming newsletters!

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