(Kitco News) - Improving economic data has lifted market sentiment, and that’s led to a “risk on” trade in the marketplace for the time being, where the dollar falls and demand for U.S. Treasurys subsides. “This is added strong support to most commodities and particularly gold, as many traders saw the recent selloff as being, perhaps, a bit overdone,” says Arnie Waters of A.L. Waters Capital. With the dollar as the safe haven of choice because of the need for liquidity, gold has fallen. “As confidence improves in regard to the debt crisis inEurope, gold has the potential for strong upside in the coming months. It is all too likely, however, that we will see some rapid shifts in market sentiment along the way,” he says.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

(Kitco News) - Edward Meir, base metals analyst, FCStone, says for the very short-term, traders should “favor the long side for the moment in most markets.” With central bank action flooding the pipeline with liquidity ahead of the year-end, credit markets should be calmer. “However, easing moves are not effective solutions per se, as lending money to crippled European banks is not going to do much to solve underlying structural issues. We reckon markets will revisit this stark reality once again, likely by early next year when the holiday fog lifts and trading positions become more concentrated,” he says.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

(Kitco News) - The gold-silver ratio, which measures how many ounces of silver an ounce of gold buys, has risen to 55:1, says Commerzbank, the highest it’s been in nearly 14 months. In April this ratio fell as low as 32:1, which was a 31-year low. “Despite the severe slump in its price, gold has therefore fared well in comparison to silver over recent weeks and months,” the bank says. Commerzbank says silver has weakened in part on reduced demand from China. Citing Chinese customs authorities’ data, the bank says, China imported “only” 232 tons of silver in November, the lowest import volume since January 2009. Concurrently, exports rose to a 12-month high of 170 tons, “thus increasingly removing an important crutch from the price of silver,” they say.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

(Kitco News) - Gold prices have rebounded following last week’s selloff, but newsletter editor Dennis Gartman says he’s not ready to buy gold again and remains neutral on the metal. “We are not prepared to recommit to the gold market this morning given that the charts of gold in dollar terms, in EUR terms, in terms of Sterling and in terms of Yen look corrective in nature and not bullish,” he says, adding that volume is light on the rally. As of 8:20 a.m. EST, February Comex gold is up 40 cents an ounce at $1,618.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

(Kitco News) - The rally, then fall, of the euro around the announcement of the long term refinancing operation by the European Central Bank could be a result of the low volume levels ahead of the Christmas holiday, says BNP Paribas, which might explain the currency’s “erratic” response to the LTRO. The bank says rallies in the euro should be sold. “Concerns that the LTRO can be viewed as the ECB's equivalent of QE (quantitative easing) will continue to linger and is likely to weigh on the EUR towards year end. We therefore recommend selling into any EUR rally as it seems likely that at least some of the liquidity created by the ECB's actions may leak abroad,” they say. Ten-year bond yields in Italy and Spain had fallen in the days before the ECB’s move, but the bank notes that yields are starting to rise again. “Looking forward the eurozone politicians continue to have hurdles to jump over and the economic outlook still requires further easing from the ECB. Investors are therefore unlikely to be enticed to start buying EUR,” they say.

By Debbie Carlson of Kitco News; dcarlson@kitco.com

(Kitco News) - The euro received a brief lift to a six-day high ahead of the European Central Bank’s first sale of long-term refinancing operation loans, says Brown Brothers Harriman. The 3-year loans were heavily subscribed, with nearly EUR490 billion in euros were taken by 523 banks. “The sheer number of banks ensures limited stigma.  This is the upper end of the range that had been anticipated, which seems more important that a median guess,” BBH says. The euro gave back most of its gains after the results were announced in “a classic buy the rumor of a strong demand and sell the fact,” the firm says. Support for the single currency is around $1.3050 if it is to hold this recent corrective move, BBH says, and they suspect further short covering is possible.

By Debbie Carlson of Kitco News; dcarlson@kitco.com