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Gold prices volatile as economic reports show home values plunging

January 29, 2009 by  

Gold is volatile in the current economyCommodity prices seesawed this week as a slew of economic reports depressed the markets and the U.S. government launched another initiative to promote economic recovery.

Gold prices hit $915 on Monday, the highest level in three months, before retreating later in the week as stocks rallied in the expectation of the House passing a new stimulus package.

The stormy week follows several major economic reports which suggest that the recession is deepening. Data from the S&P/Case-Shiller report for the 20 largest metropolitan areas show that in November U.S. house values fell by a precipitous 18.2 percent from a year earlier.

Meanwhile, job losses continued across the country, and the Conference Board reported a fall in its consumer confidence index to 37.7. In 1985, the index stood at 100.

Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, told Reuters that "the adverse feedback loop from extremely tight credit conditions to reduced asset prices and … reductions in demand for labor services continued to spin at an alarming velocity in January."

Falling house prices not only destroy wealth, but they make banks even more reluctant to extend credit creating a vicious cycle of ever-reducing purchasing power.

The House of Representatives on Wednesday passed an $819 million stimulus package intended to restart the U.S. economy.
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