Gold prices and other commodities tumbled Monday, as confirmation that the nation is in a recession further unnerved investors already concerned about a drop off in demand for raw materials.
The National Bureau of Economic Research, considered the arbiter of when the economy is in recession or expanding, said Monday that the U.S. recession began a year ago, in December 2007.
While the news merely confirmed what analysts had suspected for some time, both commodities and stocks fell sharply in reaction as investors began to question just how prolonged and severe the recession might be.
"The revelation that the U.S. entered a recession one year ago did not really surprise too many analysts, but it was still a contributing factor to today's slump in equities," wrote Jon Nadler, senior analyst at Kitco Bullion Dealers Montreal, in a research note. "Commodities followed the renewed stock selloffs with their own pre-holiday clearance sale."
Concerns about the economy have plagued both stocks and commodities in recent months, with commodities largely following Wall Street's lead.
"The equities market is generally setting the tone here for the overall economic outlook," said Richard Feltes, senior vice president and director of commodity research for MF Global in Chicago. "There is still a general level of concern about the eroding economic landscape and with the softening demand for commodities."
Wall Street initially fell on mixed reports about the start of the crucial holiday shopping season, which proved Americans are still reluctant to spend. Without strong consumer spending, investors fear the economy will continue to languish. The midday confirmation that the economy is in recession further rattled investors, who had been hopeful that last week's rally - when the major indexes rose by double-digit percentages - was a sign that some stability had returned to the market. That hope was diminished by Monday's 679-point drop in the Dow Jones industrials, which erased more than half of last week's gains. Analysts expect the volatility on Wall Street to continue until there is more clarity on the economy.
Meanwhile, bleak reports on the manufacturing sector and construction spending underscored the concern that a protracted recession could sharply curtail demand for raw materials for some time.
Gold for February delivery plummeted $42.20 to settle at $776.80 an ounce on the New York Mercantile Exchange.
Other precious metals prices also fell. March silver fell 85 cents to $9.380 an ounce, while March copper futures shed 1.85 cents to $1.6310 a pound.
The dollar fell against other major currencies. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.76 percent from 2.92 percent Friday.
Oil prices plunged below $50 a barrel Monday on the Nymex, due to ongoing concerns about a drop in energy demand.
Light, sweet crude for January delivery fell more than 9 percent, or $5.15 to settle at $49.28 a barrel.
OPEC's decision not to cut production at an informal meeting in Cairo on Saturday also contributed to oil's decline Monday. The Organization of the Petroleum Exporting Countries, which accounts for about 40 percent of global supply, reduced output quotas in October by 1.5 million barrels a day.
In other Nymex trading, gasoline futures tumbled 9.8 cents to settle at $1.1112 a gallon, while heating oil dropped 11.2 cents to settle at $1.6151 a gallon.
Grain prices declined sharply on the Chicago Board of Trade.
March wheat futures fell 33.25 cents to $5.28 a bushel, while January soybeans dropped 37 cents to $8.46 a bushel.
March corn futures fell 17 cents to $3.4875 a bushel, after falling to as low as $3.455 a bushel earlier in the session.
