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By Melissa Pistilli-Exclusive to Silver Investing News

After teasing a high of $17.60 an ounce Friday morning and later falling below $17, silver managed to close at $17.13 in New York. Gold managed to stay above $1100 to close at $1115.10 an ounce. Both precious metals were reacting to a stronger dollar on better than predicted retail sales data. The latest retails data shows sales rose nearly twice the projected increase to 1.3 per cent in November.

On Monday, silver and gold got a pick-me-up as the markets let out a sigh of relief on reports that Abu Dhabi is bailing out debt-soaked Dubai to the tune of $10 billion. The news also forced the dollar down against the euro and the yen. Gold managed to close up at $1127.40 and silver also posted gains to finish at $17.42 an ounce.

“Stock markets have recovered and that indicates that at least a little more risk taking is coming back into the market,” said Quantitative Commodity Research consultant, Peter Fertig.

Silver and gold are slowly recovering after the release of promising economic data earlier in the month gave comfort to an ailing dollar and humbled precious metals bulls.

Gold suffered its biggest one day decline in over a year and silver also lost big after briefly surpassing the $19 level in early December only to fall 12 per cent on news that the US unemployment rate fell 0.2 per cent to 10 per cent in November.

The number helped fuel notions of looming economic recovery and a quicker return to normal interest rates by the Fed, which dampened appeal for precious metals and sent the dollar climbing nearly 3 per cent. The debt scare in Dubai didn’t help matters with commodities across the board taking hits and Friday’s retail numbers added further pressure.

The next market moving news due out from the US is scheduled for Wednesday of this week after the Fed finishes its final policy meeting for 2009. While the central bank is expected to keep interest rates at near zero, the question is for how long?

“Much will depend on the upcoming rhetoric from the Fed and their choice of wording to manage inflation expectations,” said Andrey Kryuchenkov analyst at VTB Capital. “A rate rise is still not expected until 2H10 (second half 2010), but the dollar sentiment could be gradually improving and this would slow down much expected gains in gold in early 2010.”

Economic data from the US has really been shaping the precious metals markets as of late. Traders are grasping onto every bit of information trying to decipher their next most lucrative move. But how much do these slight fluctuations in unemployment numbers and retail sales for one month really matter in the bigger picture?

Perhaps precious metals analysts David Levenstein is correct to ask: Firstly, do you really believe that the Fed is going to suddenly raise interest rates based on these two reports? And secondly do you really believe that the long-term trends in gold and the US dollar have reversed in the last ten days?

While some bears are saying we told you so and are trumpeting the end of the precious metals rally, other analysts are calling the burst bubble notion a bunch of ballyhoo. Rather, say those still confident in silver’s strong fundamentals, this latest setback represents more of a seasonal phenomenon and a warranted price correction after an aggressive run-up. The end of the year often brings position squaring and market reversal, but the cyclical nature of the commodities markets proffers further price escalations down the road.

We can expect more sell-offs before the year is out, but analysts are predicting recovery in the precious metals markets to begin in early 2010.

And China’s economic recovery plays a big role as the resource hungry nation looks to re-start the economic growth levels reached before the global financial meltdown. VM Group‘s global metals report details resurging metals demand out of China as well as in some OECD nations. China’s growth for 2010 is projected at around 9 per cent boosting demand for industrial metals like silver.

Other analysts agree with this forecasted boon for commodities. “Barring shocks, we believe there’s going to be sustained GDP growth coming from the emerging market countries that will benefit commodities,” said Jonathan Xiong of Mellon Capital Management.

Silver’s role as precious metal really came to the forefront this year, but its industrial role will be what carries gains in 2010. Silver is a part of the “reflation” or recovery trade, says Michael Lewis, commodities analyst at Deutsche Bank AG. GoldCore bullion dealer says it expects silver to be “the surprise outperformer in 2010, as it was in 2009.” And Macquarie Group Ltd has pegged silver at $18.00 an ounce for 2010, up 13 per cent from its previous forecast.

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