Rising bond yields and the dollar will likely remain key areas of focus for investors this week. The ten year note yield has been flirting with the three percent yield level, and has already caused some significant investor anxiety and market volatility.

After trading in a range from 88 to 90 or so, the dollar index has put together a bit of a rally in recent sessions, pushing prices to almost 91.50. Whether or not the recent run higher is sustainable is another question. 

The dollar has been propped up by higher yields and an unwinding of the short dollar trade, which had gotten considerably crowded. Although higher yields may provide some support for the currency, a swift reversal in yields also has the potential to bring the dollar right back into its previous range, or even lower.

Wednesday’s FOMC meeting announcement could potentially have a significant impact on both yields and the dollar. No action is expected from the central bank at this meeting, however, investors will be very interested in the central bank’s statement. Markets have now priced in three additional rate hikes in 2018, while the Fed sees only two. A hawkish tone in the central bank’s commentary could set the stage for a June rate hike, fueling further dollar upside in the process. Such a scenario could potentially have a knee-jerk, negative impact on gold prices. A lack of any hawkish rhetoric, or even a more dovish tone, however, could take the wind from the dollar’s sails and fuel buying in hard assets like gold.

Following the FOMC meeting, investors will then turn their attention to Friday’s non-farm payrolls data for April. The economy is at or near full employment, and investors will likely be more concerned with wage data as opposed to the headline number. Rising wages could point to further economic strength, and the potential for a faster rate of  monetary policy normalization. Higher wages would also indicate that inflationary pressures are on the rise, which could be considered very bullish for gold.

Further signs of inflation could keep upward pressure on bond yields. If the benchmark ten year note is able to maintain a yield of three percent, positive economic data could potentially send yields sharply higher in short order. Some analysts have already suggested that a 3.5 to 4 percent yield is likely in the cards in the months ahead.

Although higher yields may have weighed on gold in recent weeks, an ongoing move higher in rates could potentially be a major bullish catalyst for gold. The only reason the Fed would look to become significantly more aggressive with rates is if falls behind the inflation curve. If that proves to be the case, investors could seek out hard assets like gold to provide a hedge against rising prices and a decline in purchasing power. Not only that, but higher rates may pressure stocks, as more attractive yields compete for investor capital. Much of that capital could, however, find its way into the gold market as investors seek out alternatives with more potential upside.

The gold market has numerous bullish factors currently at work that could potentially take prices sharply higher in the weeks and months ahead. Although the numerous geopolitical headwinds being seen around the globe could play a role in higher gold, there is likely a far more significant issue that could be behind any upside breakout.

The dollar index has struggled to put together any sustainable move to the upside. The currency’s lack of traction has caused the greenback to trade within a range, moving sideways between the 88 and 90 levels. Although the dollar bulls have stopped the bleeding- at least for now, the currency is facing some serious challenges that could not only prohibit any moves higher but could set the stage for a dramatic decline.

The dollar is not far from its recent lows around 88, and another test of the recent lows could give way to a much larger decline. The notion of an even weaker dollar could be the primary force fueling action in the gold market. Despite numerous other bullish inputs, a weaker U.S. currency could propel gold sharply higher from current levels.

A bearish case for the dollar has become quite compelling in recent months. An exploding deficit, relatively low interest rates and the global reflation trade have all weighed on the dollar, and may continue to do so throughout 2018. Of particular note is the fact that the dollar has not seen much of a bounce even as the geopolitical landscape becomes increasingly unstable. This could be indicative of an investor preference towards hard assets like gold in lieu of dollars.

To put it simply, recent price action in gold may be a dollar trade and not a fear trade.

The trading week ahead will bring some important pieces of data as well as some commentary from Fed officials. The Fed’s Beige Book due for release on Wednesday as well as Leading Indicators to be released on Thursday could be focal points for investors this week.

The Fed has recently reiterated its plans for further rate hikes in the months ahead, and any surprises from the Fed have the potential to be market moving. Despite its plans for further hikes this year, however, the dollar could still continue to lose ground as other global central banks take a more aggressive approach towards normalizing monetary policy.

The gold market could potentially find itself in a bullish position either way. If the Fed raises rates as planned, or even becomes more aggressive with a larger or fourth rate hike, stock investors may become weary and begin exiting the market in larger numbers. As risk aversion increases, investors may seek out alternatives.

The central bank could, however, also elect to keep its foot on the gas and refrain from additional hikes at this time. St. Louis Fed President James Bullard was quoted recently in an article from marketwatch.com, and questioned the need for further hikes at this time. According to the article, Bullard referred to the current level of rates as being “quite close to neutral right now,” meaning that rates are neither fueling nor dampening inflationary pressures. Mr. Bullard also reportedly questioned the need to implement rate hikes in order to counter temporary fiscal stimuli such as the recent tax cuts or spending bill passed by Congress.

Bullard’s opinion appears to be in stark contrast to that of some other Fed officials, who have voiced a far more hawkish view. Either way, there appears to be some considerable disagreement between the policy hawks and doves that could fuel market uncertainty.

Not only would a lack of action from the Fed send mixed signals to the markets, but it could also have a huge impact on the dollar which may already be on very thin ice.

The global trade war appears to be officially under way. Over the weekend, China implemented tariffs of up to 25% on 128 different U.S. products, including pork, fruit, nuts and wine. China is without a doubt taking recent actions by the Trump administration very seriously, and in a quick retaliatory move has hiked tariffs on key imports.

The situation could escalate further, and it already has global investors on edge. Much of the recent market volatility can be attributed to the potential for a significant war in global trade, and any further actions by either side may rock equity markets even further.

The benchmark Dow Jones Industrial Average snapped a nine quarter win streak, and some analysts are putting the blame on rising volatility. Wall Street’s fear index, known as the “VIX,” surged some 85%, the largest rise since 2011. There could be a number of potential reasons for heightened fear in the marketplace, including the potential for a trade war, ongoing geopolitical issues, the potential for higher rates and inflation.

Whatever the major catalyst might be, investors seem to be taking a much more cautionary tone when it comes to equities. Although this does not necessarily mean that stocks will go lower, it does mean that many investors see reason to worry. That, in turn, could act as lighter fluid on any stock market sell-offs, quickly turning a normal pullback into a much larger-scale downturn.

The trade spat with China comes at a time when the dollar continues to struggle finding any upside momentum. Although the dollar index has recently halted the slide lower, the greenback does remain vulnerable to selling that could see the currency embark on a fresh and significant leg lower in value. The longer the index trades under the 90 level, the more likely another move lower may be seen.

Investors will be watching both the geopolitical landscape and the data stream closely in the weeks and months ahead. As it stands, the Fed has penciled in another couple rate hikes this year, but that could change based on inflation expectations or other issues. The central bank has alluded to the possibility of a fourth hike, or even making a 50 basis point jump at one of its upcoming meetings.

Further signs of economic strength may give the central bank reason to become more aggressive as it looks to normalize monetary policy. Strong data could, therefore, weigh on equities and risk assets. Weaker data, on the other hand, may keep the Fed at bay, which could fuel further fears of inflation accelerating and the central bank falling behind the curve.

Either scenario could potentially be considered bullish for gold. The heightened stock volatility risk, geopolitical issues and rising inflation against an improving technical backdrop may keep the yellow metal on the offensive in the weeks and months ahead. In addition, stocks could be in the early stages of a long-term top, as increasing worries over valuations may fuel further selling. An increasing number of investors may look to take profits in stocks, and a significant asset rotation could get started, fueling fresh buying in alternative asset classes.

This week could bring with it some fireworks, and a sudden and rapid rise in market volatility could be seen. There are two major issues that will take center stage this week, the ongoing state of geopolitics and the highly anticipated Federal Reserve meeting.

Late Friday night, U.S. Attorney General Jeff Sessions fired former FBI Deputy Director Andrew McCabe. The firing came just over 24 hours before McCabe would have been eligible to retire. The reason given for the termination was that McCabe had disclosed unauthorized information to the press, and was also reportedly less than candid with investigators from the inspector general’s office.

McCabe reportedly sees the dismissal in a very different light, however. He has suggested that he had the proper authority for the disclosures, and that his firing is part of an effort to undermine the ongoing investigation into Russian meddling in the 2016 election.

The firing has raised some questions, given McCabe’s history with President Donald Trump. McCabe has been a supporter of previous FBI Director James Comey, who was fired by Trump last May. Although there were several reasons given for Comey’s firing, it has been suggested that Comey was not willing to pledge complete loyalty to Trump, and the President also made clear in an interview with NBC’s Lester Holt  that the Russia investigation had been a part of the decision.

The McCabe ouster comes just days after the firing of Secretary of State Rex Tillerson, and there could be a wider personnel shakeup in the near-term. Not only that, but it does appear that perhaps President Trump is laying the groundwork to fire Special Counsel Robert Mueller. Any move to fire Mueller could have drastic repercussions, possibly leading to a constitutional crisis.

Markets will be very vulnerable this week to headlines, and investors will be watching any further developments closely.

The Federal Reserve is also slated to meet this week. It is widely expected that the central bank will implement a 25 basis point hike in the Fed Funds Rate as it continues to normalize monetary policy. Investors will be far more interested in the Fed’s so-called dot-plot, however. It is currently expected that the central bank will raise rates three times this year and three times again next year.

Recent inflationary pressures along with rising wages have, however, given some credibility to an argument for a fourth hike in 2018, or perhaps even a 50 basis point hike along the way. Although a 50 bps rise seems unlikely, the Fed could decide that it is already behind the curve, and could look to become more aggressive in its monetary policy. A more hawkish Fed could potentially put the brakes on the stock market rally, and could also potentially push the economy into recession.

Without question, the central bank will need to walk a fine line-a very fine line-in order to prevent inflation from overheating while keeping the economy on track. With a seemingly impossible task at hand, however, any missteps by the central bank could fuel a spike in market volatility and even a sharp sell-off in stocks and bonds.

Rising volatility and increasing investor anxiety could potentially keep perceived safe-haven assets such as gold on the offensive in the weeks and months ahead.

There are certainly a lot of issues that could potentially have a dramatic impact on global financial markets. The notion of higher interest rates, recession, accelerating inflation and geopolitics are all likely to weigh on risk assets in the months and quarters ahead. Now, the threat of a global trade war can also be added to the list.

President Donald Trump recently announced a 25% tariff on steel and a 10% tariff on aluminum. The President is set to sign off on the proposal this week or next, and as of right now no country is excluded. This could be the first step in what could turn into a larger trade war.

Some nations have suggested that they would retaliate, and the issue of trade is certainly something that could have a significant impact on equity markets. Companies in numerous arenas, such as machinery, heavy equipment manufacturing and building products, could all see sharp declines in their stock prices due to the legislation.

President Trump has reportedly indicated to Mexico and Canada that the tariffs would only be rolled back in the event that concessions are made regarding a new NAFTA agreement. The U.S. appears ready to take a hard line on the issue, regardless of what the consequences may be.

The U.S. also seems ready and willing to slap new tariffs on European imports, if Europe decides to respond. As of Friday, several nations, including Canada, Europe, Mexico, China and Brazil were reportedly weighing possible countermeasures.

Not only could such action fuel a global trade war, but it could have significant effects on the stock market-even putting an end to the “Trump” rally. It could also play a role in an economic contraction, and could force the Fed to think twice about the path of interest rates. A trade war could also impact the dollar, potentially sending it lower and contributing to a decrease in purchasing power.

Gold could potentially see significant buying interest if the trade war escalates. Increasing risk aversion, a weaker dollar and lower stocks could all drive capital inflows into perceived safe haven assets such as gold.

The potential for a trade war comes at a time when stocks may already be arguably overvalued, as the aging bull market tries to stay intact. The dollar has already seen significant downside in recent months, and could be very close to another, major leg lower. Dollar outflows could exacerbate the situation rapidly, as investors may see no advantage to holding dollars if the trade war gets under way. This, in turn, could also be very negative as the U.S. is in the midst of an exploding deficit. In other words, the U.S. would essentially be going to war on trade with nations that it is relying on to finance its debt.

A trade war would likely dominate headlines in the weeks and months ahead, and could lead to a massive exodus from risk assets and dollars. That being said, investors may look to buy any dips in the gold market, and prices may not see any significant downside pressure against the current economic and geopolitical backdrop.