Daily Updates

Spot precious metals dealings opened with assorted losses Friday morning as the aforementioned fizzling in the euro’s rally occurred and as the US dollar repaired yesterday’s minor damage with an ascent of 0.35% to the 80.36 mark on the trade-weighted index. Gold fell $10 to $1,645.50 while silver dropped 19 cents to the $30.45 bid quote. Rhodium was quoted as unchanged at $1,300 per ounce.

HSBC’ release of its flash Chinese PMI data added to the base and precious metals’ woes as it continues to show difficulties in that country’s manufacturing sector (as well as its export sector). As China ushers in the New Year, many are wondering what will happen in the all-important real estate niche given what has just been learned about it.

Bloomberg Business Week reports that China’s December home prices posted their worst performance last year, with only two of the 70 cities tracked by the government posting gains. Prices in 52 of 70 cities monitored declined from the previous month, the statistics bureau said this week, while those in the nation’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou slid for a third month. The nation’s home transactions will fall 10 percent this year, according to Daiwa Securities Capital Markets, while UBS AG says the curbs may boost supply to the highest in a decade.”

Also adding to downside pressure in gold was the perception that physical gold demand from China is now at risk as locals begin Year of the Dragon celebrations and have apparently loaded up on as much gold as they wished prior to the event. Counting on India to take up the slack may not…pan out either, as one day after the imposition of new, high tariffs on gold and on silver the locals were apparently steering clear of their local gold outlets.

It is, however, a reasonably safe bet that some Chinese gold acquirers in recent weeks opted to go for the stunning range of PAMP “Lunar Calendar Series” gold ingots that feature the scaly creature that hopefully brings them good fortune in 2012. Enter the Dragon; the PAMP Dragon, that is. You can see it, along with many other fine recent designs by gold fabricators at your one-stop source for jaw-dropping images of the yellow metal; GoldBarsWorldWide.com

Platinum was down $15 at $1,505 and palladium was off by $12 at $663 per ounce. In PGM-supportive news, we have two items of interest today. First, we have the news that GM is at number one spot again (whodathunkit after the near-death experience it had just 36 months ago?) in the world of automobile sales. The US firm moved more than 9 million cars into global consumers’ garages last year, edging out Toyota Motor, which also fell behind VW Group in its 2011 sales on account of the production difficulties arising out of the March 2011 Sendai Quake.

Next, if you thought that the probable exhaustion on Russia’s state-owned palladium stockpiles might make life “interesting” for that metal as we head into next year, consider the following news item as well. Reuters reports that “Russian miner Norilsk Nickel is expecting to reduce production this year to adapt to a slight fall in global metals demand, its CEO said on Thursday, but does not see a slump into another global economic crisis. The company [is] the world’s biggest producer of nickel and palladium.”

While all eyes are on Greece, Portugal edges closer to default. Yields on Portugal’s 10-year bonds climbed to 14.39pc on Thursday. Credit default swaps measuring bond risk have reached 1270 points, pricing a two-thirds chance of default over the next five years. While some of the latest damage reflects forced selling of Portuguese debt after Standard & Poor’s cut the country’s credit rating to junk status last Friday, there are deeper worries that sharp fiscal cuts by the free-market government of Pedro Passos Coelho may prove self-defeating.

Jurgen Michels, Europe economist at Citigroup, said Portugal’s economy will contract by a further 5.8pc this year and by 3.7pc in 2013, a far sharper decline than official forecasts. The peak-to-trough collapse would be 13pc, a full-fledged depression.

“As this gets worse it is going to be extremely difficult to go ahead with more austerity measures: political contagion will start to come through,” he said.

Portugal has so far reacted calmly. It has avoided the sorts of riots seen in Greece, but patience is wearing thin. The CGTP labour federation held a protest march in Lisbon this week, vowing to resist “forced labour”.

A new study by the Barometer for Democracy shows that confidence in Portugal’s democracy has fallen to the lowest since the end of the Salazar dictatorship. Barely more than half retain faith in the system and 15pc pine for “authoritarian” rule.

While Portugal’s public debt of 113pc of GDP is lower than Greece’s, the private sector has much larger debts and the country’s total debt-load is higher at 360pc of GDP – much of it external debt.

“There is huge private sector deleveraging going on and the banking system has big problems. It is unclear how much of this private debt is going to end up on the state’s door-step,” said Mr Michels.

“Without a sizeable haircut to its debt stock, Portugal will not be able to move into a viable fiscal path. We expect a haircut of 35pc at the end of 2012 or in 2013.”

The problem is the slow-burn threat of debt-deflation. Interest costs for Portuguese companies are painfully high – if they can roll over loans at all – and the debt burden is rising on a shrinking economic base. Real M1 money deposits contracted at an annual rate near 20pc in the second half of 2011.

Since the country cannot devalue within EMU, it hopes to achieve an “internal devaluation” to restore 30pc in lost competitiveness against Germany. This is a gruelling process, entailing cuts that eat away at tax revenue.

Portugal is a troubling case for EU officials, who insist that Greece is a “one-off” case rather than the first of a string of countries trapped in a deeper North-South structural rift. The official line is that Portugal will pull through because it has grasped the nettle of retrenchment and reform.

Europe’s leaders have vowed that there will be no forced “haircuts” for holders of Portuguese bonds. If the country now spirals into a Grecian vortex as well they will have to repudiate that promise or accept that EU taxpayers will have to shoulder the burden of debt restructuring.

While all eyes are on Greece, it is the slower drama in Portugal that will ultimately determine the fate of the eurozone.

The evolution of the United States dollar has been one of the most misunderstood issues of all time. There has been far more at stake in the Rise & Fall of the dollar than meets the eye. This is not an issue of Intangible v Tangible (Paper v Gold). This is the core issue of the migration of the Financial Capital of the World that has taken place through time and circumstance.