The Federal Reserve recently approved a second interest rate hike for 2017. Additionally, they signaled plans to reduce their $4.5 trillion balance sheet. Essentially, these plans add up to a departure from the easy money policy that has reigned in recent years.

During times like this many investors question the value of precious metals as an investment. The reason: as interest rates increase other interest-bearing investments like bonds and dividend-paying stocks also raise their rates. This move increases the opportunity cost of gold. That is, allocating one dollar to gold means foregoing the opportunity to put that same dollar to work with one of these bonds or dividend stocks.

However, does the data agree with the popular sentiment that rising rates means falling gold?

In short, the answer is no. Between April and November of 2004, as the Fed repeatedly raised rates gold exhibited a similar pattern of a gradual rise. This one example serves as a reminder that conventional wisdom lacks wisdom.

The broad belief that a negative correlation exists between gold and interest rates is simply false. Case in point: from 1970 to 2015 the price of gold and interest rates experienced only a 28% correlation. Moreover, periods of surging gold prices have been characterized by similarly aggressive rate hikes. Throughout nearly all of the 1970’s, interest rates quadrupled while gold made an incredible journey from $50 an ounce to $850 an ounce.

The surprising durability of this myth is problematic for two reasons. First, it misdirects investor’s buying decisions. Second, the mere presence of the myth distracts from the clearer truth; gold prices fluctuate based on marketplace demand.

This myth is, unfortunately, likely to persist despite that on the heels of the Fed’s latest decision gold prices have risen. This jump in price stems from renewed fears about the health of the U.S. economy. Though the Fed’s move inspires some confidence, recent metrics are casting doubt on the likelihood that the Fed will approve a second hike in September. “Right now the market is doubting they’re going to be able to do a hike in September. That’s because U.S. economic data has been weak,” remarked a senior market strategist at RJO Futures.

The larger picture may portend a market correction thereby boosting demand for gold further. The easy money policy of the Fed has emboldened and empowered investors to commit more money to the equities market. Why? Because as the government purchases bonds investors migrate to investments with a greater return (albeit at a higher level of risk).

These inflows have been driving up stock prices to levels which some contend are outsized relative to the inherent value of the underlying assets.  As policymakers resolve to remove this support the stock market may experience outflows causing share prices to drop. “Don’t be mesmerized by the blue skies created by central bank QE and near perpetually low-interest rates. All markets are increasingly at risk,” remarked the co-founder of Pacific Investment Management Company.

Investing often means challenging assumptions and questioning norms. As major economic policies shift revisit your preconceived notions and consider how your portfolio could be improved.

It’s the first rule of investing. Keep your assets spread across various investments to mitigate downside risk. Traditionally, investors have followed a simple 60/40 portfolio design. This strategy means holding 60% of your portfolio in stocks and 40% in bonds. Different factors influence these two groups. Therefore, a drop in one doesn’t necessarily precipitate a drop in the other. Diversification is a simple strategy that works. The only problem? Sometimes it fails investors.

Markets can become volatile as seen by the Great Recession. During periods like this diversification begins to lose its effectiveness. Recent research from BlackRock determined that “increases in volatility are often naturally related to increases in correlations.” Why would heightened correlations be a problem for investors? When different investments start to behave in a similar fashion risk increases. Factors driving down one investment will have the same effect on another.

The same body of research from BlackRock illustrates that during the two significant bear markets of the Tech Bubble (2000-2002) and the Great Recession (2007-2009) “correlations between many individual investments and even asset classes spiked.” This phenomenon presents investors with a problem: diversification is least effective when it’s needed most. Imagine a fire extinguisher that risks exploding in warm environments.

For example, during the Great Recession, international stocks exhibited a correlation of 0.93 to mid-cap stocks. A perfect correlation is 1.0 meaning that these two classes moved in near lockstep with one another.

What’s the solution?

The researchers suggest turning to alternative investments. This strategy can bolster diversification, so a portfolio can withstand dramatic market downturns. Commodities like precious metals fit into this category. Major institutions like Harvard and Yale have discovered the value of allocating a portion of their endowment to these alternative investments. In fact, over the past 25 years, both schools have increased their exposure to alternatives which also include instruments like futures and short positions.

The research supports their strategy. During the recession, the S&P 500 Index experienced a drawdown of 50.9%. This dramatic fall means that the index needed to deliver a return of 103.9% just to recover lost ground. However, the Dow Jones Credit Suisse Index, which includes alternatives, lost just 19.7% in the same period requiring only 24.5% to recover. What increased by 25.63% during this period? That’s right, gold surged.

During a major market downturn, alternatives make a difference.

Many investment instruments lumped into the “alternative” category are complex and speculative. Examples of these esoteric offerings include derivatives, convertible assets, and global macro strategies. Therefore, investors must be comfortable with the terminology and mechanics of the methodology. However, commodities like gold offer an easy (and easy to understand) way to begin capturing alternatives in one’s portfolio. Including this one additional asset class in a basket otherwise consisting only of stocks and bonds can have a measurable impact on risk.

Today central banks are starting to remove support thereby elevating risk. Make diversification work by including more asset classes and ensuring that when the market falls your portfolio stays afloat.

Despite a culmination of highly anticipated market-moving events last week, US equities were little changed for much of the week. During the first four trading days last week, the S&P 500 fluctuated within a ten-point range, or about 0.40%, which is extremely narrow.

The Nasdaq 100, however, continued to blaze a new trail into uncharted territory by making new all-time highs throughout the week before finally taking a steep dive during Friday’s trading.

Many market participant ants were expecting Thursday to be one of the most volatile trading days of the year due to the combination of political events taking place. However, the result was less dramatic than expected for equity markets around the world.

Former FBI director James Comey’s testimony before the Senate seemed to have a negligible impact on the equity market, despite the hyped-up anticipation. Investors from across the world tuned in to watch Comey’s live testimony looking for any clues as to what happened in private meetings with President Trump. And despite all the anticipation and viewership, US stocks were marginally higher without much volatility or rapid, knee-jerk movements.

Similarly, the UK election seemed to be somewhat of a non-event as well for US equities. For European equities, The FTSE 100 only fell 0.40% during polling and ended up finishing about 1% higher after the election. What came as a bit of a surprise, current Prime Minister Theresa May lost 12 seats in Parliament, resulting in what is called a “hung Parliament.”

“From a market perspective, a hung Parliament is seen as one of the worst possible outcomes to this election, because it just injects further uncertainty into the United Kingdom as it heads into Brexit negotiations with the European Union,” wrote Jameel Ahmad, vice president of market research at FXTM.

Before the election, however, analysts at FXTM noted how traders were heavily betting on a landslide victory for Theresa May and her party. With Brexit talks just around the corner, this election outcome unequivocally complicates the global political environment.

To cap off an already lackluster week, shares of technology companies dramatically declined on Friday, putting the Nasdaq 100 off more than 3% at one point. The stark sell-off was led by the largest company in the world by market capitalization, Apple Inc. Analysts chalked last week’s sell-off to “profit-taking” after an enormously strong year-to-date rally in technology companies. There was no concrete news that seemed to instigate the severe sell-off.

In the precious metals market, gold made a new year-to-date high of $1298.8, stopping just shy of the $1,300 level on Tuesday of last week. Gold has since declined but is showing signs of strong support well above $1,250. When the United Kingdom decided to leave the European Union last year, the event dubbed “Brexit”, gold soared to new highs. Given that the UK election resulted in a hung parliament, it seems reasonable to see further upside in gold given the increased uncertainty. 

In the days ahead, traders have their eyes on a two-day Fed policy meeting starting on June 14^th. Fed fund futures traded on the CME showed a 95.8% probability of an interest rate increase.

In the simplest form, there are two basic strategies for investing, technical and fundamental analysis. Technical analysts seek opportunities to make money by watching price movement patterns. These traders aren’t concerned with broad economic factors or monetary policies that may have implications for gold. When you think of technical analysis picture someone sitting behind three screens covered with charts and intimidating graphs.

Fundamental analysts take the 30,000-foot view. Rather than immerse themselves in the minutia of decimal points and short-term price movements, they examine the market as a whole. When making an investment in gold they make a judgment on whether the price is reflective of the intrinsic, or fundamental value of the asset.

Why do these two groups disagree on the best method for investing? Technical analysts believe that the market is efficient. That is, the market, at all times, prices in all the pertinent information regarding an asset. Under this assumption, there is no way to make strategic investments based on fundamentals because the current price accounts for the most likely future outcome. Meanwhile, fundamental analysts believe that a read of the general market can yield opportunities for price appreciation.

So, who is right?

The debate will never end. Both sides can point to gains and claim success. In the end, the question of which is better is best answered by considering one’s risk tolerance. Technical analysts live in the narrow spaces between the dots on their charts. Fundamental analysts make a trade then wait, sometimes for years.

What can these two different styles tell us about the future of gold? Recently, a technical analyst with Evercore ISI cited “symmetrical triangles,” “reverse head-and-shoulders bottom,” and a “double top.” What do all these measurements add up to? He sees gold as “quite bullish.”

Much of this analysis comes from a common technical measure of momentum. In short, an asset that’s rising in value is likely to continue rising according to technical analysts. Given gold’s recent rise many such analysts have high expectations for growth.

How does this compare to a fundamental analysis of gold? Interestingly, the perspective on the other side of the table is equally positive. Looking to 2017 The World Gold Council has shared an optimistic outlook explaining that new markets, Asian growth, and rising inflation will all buoy the metal’s performance for the year.

These symmetrical perspectives illustrate how investors can take cues from both camps. When technical and fundamental analysts agree there’s good reason to be bullish on an asset. When considering an investment take a moment to see if the charts match the heart. Do the numbers, movements, and prices reflect your inward feeling about the investment?

Many brokers have already made their decision. “There’s no denying, gold has its buy boots on,” remarked one trader. Today, inflows to increasing as more investors seek the benefits of growth seen in the last several weeks. When the market is high even technical and fundamental analysts can agree it’s time to buy. 

In another stellar week for stocks, benchmark US stock indices continued to climb and make new all-time record highs. In what has only happened a handful of times in trading history, Nasdaq 100 index futures, traded on the CME, have not closed in the red for the past 11 consecutive trading days. What also might seem unbelievable, Nasdaq 100 index futures are officially up more than 20% for 2017.  Evidently, market participants have had no hesitation to buy expensive stocks with lofty valuations.

However, this truly historical stock rally is not just confined to the country with the largest economy in the world. Japan’s Nikkei 225 stock average index soared past 20,000 for the first time in history, and other markets seemed to tag along for the ride in overnight US trading on Friday. England’s FTSE 100 index made a new all-time high during Friday’s trading. Similarly, Germany’s DAX 30 index, rallied past 12,822.94 thereby making a new all-time record high. It’s safe to say stocks around the world are being purchased en masse. But can it last? Most analysts concur the answer lies in the economic data.

Despite a small sell-off due to a weaker than expected job’s report on Friday, stocks around the world quickly recovered. Economists were forecasting somewhere around 180,000 new jobs for the month of May, but only 138,000 jobs were added. Often times when jobs reports disappoint, the reaction in the market can be mixed. Occasionally, a weak jobs report is healthy for the market, because it indicates the Federal Reserve might be more cautious to raise interest rates.

The underwhelming jobs report certainly assisted the gold market, as spot gold soared 0.80% to climb above $1,280 a troy ounce upon news of the weak than anticipated report. Traders are now pricing in a slight possibility of a delay in an interest rate increase that was originally expected this month.

“This is undoubtedly a weak jobs report, especially with downward revisions. But it’s just one data point that will not change the Fed’s course, which is to raise rates at its June meeting,” said Michael Antonelli, equity sales trader at Robert W. Baird & Co.

Regardless of the outcome of the Fed’s meeting in the coming weeks, stocks and gold have appreciated almost in unison this year. Despite the seemingly endless gains in the stock market this year, gold is still outperforming the S&P 500. Gold is currently up 10.31% for the year while the S&P 500 is up 9.34%. The only asset (besides live feeder cattle) that tops the Nasdaq 100’s impressive 20% YTD gain is palladium which is currently up 22.70% for the year.

Meanwhile, in other global economic news, the price of crude oil continued to sink last week and weigh heavily on shares of companies in energy sectors around the world.

Moving forward in the weeks ahead, all eyes are still glued on the president’s every move as well as the Fed’s every move, because both entities evidently have an increasing effect all markets around the world. 

The novel is set in the year 2029. Interest rates are skyrocketing higher. A dollar crisis has emerged. Inflation is running rampant. America has lost its superpower status and has become a near pariah state.  

If you are looking for a good summer read, check out the The Mandibles: A Family 2029-2047 by Lionel Shriver. (2016 HarperCollins Publishers). It reads like a fast-paced thriller, with an economic scenario that has realistic roots.  

As the U.S. dollar crashes it is replaced by a new global reserve currency. Countries are now using a new global reserve currency called the Bancor – which is physically backed by a basket of real commodities, including corn, soy oil, natural gas, rare earths copper and, of course, gold.  

As the economic crisis unfolds, the U.S. president freezes all money transfers out of the U.S. Capital controls are established and no amount above $100 is allowed to leave the U.S.  

Airport security officials search all those departing the country and businessman with suitcases bursting full of dollars lose their money to confiscation.  

The goal of the new global new physical-commodity backed reserve currency is to restrict the money supply (similar to the old gold standard) and put an end to the quantitative easing and money printing monetary policies that global central banks have embraced in the post 2008-global financial crisis era. 

The new International Monetary Fund demands that U.S. Treasury debt held by foreign investors must be redeemed in bancors. Of course, the American government doesn’t have enough gold or commodities to back its trillions of dollars in national debt.  

The U.S. President finds an easy way out. Just like individuals can declare bankruptcy and have a fresh start –he decides the U.S. government can do that too. He notes, he didn’t run up all this debt, it was a legacy of former presidents.  In a national address, the President declares its debt null and void. The Treasury and the Fed declare a “reset.”  

What happens to the price of Gold in this fictional page turner? It skyrockets to new all-time highs and investors around the world clamor for what has served as a recognized store of value for 5000 years.  

This is a fictional tale, with a disconcertingly plausible economic story line. How does it end? You’ll have to read it to find out.