Rates Up, Recession Next

And buying gold gains appeal...

STOCKS sold off more sharply late last week than we've seen since late June, with the S&P 500 Index sliding below its 50-day moving average, writes Frank Holmes at US Global Investors.

The unemployment rate fell to 3.7%, its lowest level in nearly half a century, convincing many investors that the Federal Reserve will now begin to raise rates more aggressively in an effort to prevent the economy from overheating.

As I've shared with you before, all but three recessions of the past 100 years were preceded by a rate hike cycle.

Meanwhile, the trade dispute between the world's two largest economies doesn't appear to be abating anytime soon. Now that President Donald Trump has succeeded in rebooting the North American Free Trade Agreement (Nafta) – provided it gets ratified by Congress – he's likely to turn up the heat on Beijing. Some analysts predict the US will eventually max out tariffs on all Chinese imports. J.P.Morgan now forecasts a "full-blown trade war" as its "new base case scenario for 2019."

The US economy is humming along robustly, but it's better to prepare for the next downturn while the bull is still running than after it's crashed into a wall. Last week I spoke with Daniela Cambone of Kitco News and explained the reasons why I'm bullish on gold, including Vanguard's decision to slash its exposure to metals and mining, and the recent Barrick Gold-Randgold Resources merger deal.

During the interview, I also discussed the news that Poland purchased gold this pastsummer at a pace not seen in 20 years.

The Eastern European country, which was just upgraded to a developed market, added nine tonnes to its gold reserves in July and August, the most since 1998, and the most by any European Union country in the past two decades.

Speaking with Bloomberg, mBank senior economist Marcin Mazurek said the Polish central bank's decision was likely based on diversification, "combined with the expectation for higher global inflation."