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Since 1929, when Wall Street plunged, the president of the United States can only say one thing: "The fundamentals of the American economy are good." This sentence, with a few close variants, has been systematically used by all political leaders and central banks when markets tumble.... Today in Europe, as in the United States, the fundamentals are not good. Markets are not wrong. They are right.
The United States is short of ammunition to revive demand. Companies do not need cheaper credit, they need customers. Citizens do not need cheaper credit or lower taxes. They need jobs and higher wages.
We can no longer pretend to believe that American and European fundamentals are good. Thus, investors, anxious to preserve the value of their holdings, sell their shares and buy gold. They also buy Treasury bonds. But for how long?
Gold is useless. Gold does not produce anything. But the precious metal is seen as the best way of retaining the value of financial assets. And if inflation is the final solution, gold is the last defense.
