How will falling US consumer spending affect gold?

Paul van Eeden examines past and current trends to suggest what the fallout from the US housing slump and reduced consumer spending will be, especially for gold and other base metals.

A reader recently sent me an interesting chart that compared the housing industry to the S&P 500 stock index. It clearly showed an incredible correlation between real estate and stocks, and it was so amazing that I got the raw data and plotted the chart myself just to make sure it was real.

The National Association of Home Builders (NAHB) in the US uses a Housing Market Index (HMI) to gauge the single-family housing market. The HMI is based on monthly surveys of NAHB members and includes things such as the present sales of new homes, sales of new homes expected in the next six months and traffic of prospective buyers of new homes. It is therefore a forward-looking instrument.

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