Gold prices are up 14% on the year and the question everyone is asking is can this rally continue?

The resounding answer is yes!

Here are 3 reasons why the gold rally is probably just getting started.

1. Elevated Global Geopolitical Risks

North Korea continues having trouble playing nice in the sandbox. The latest round of missile tests have only heightened the tensions between this rogue nation and the United States. Unless there is a clear resolution to nuclear threat on the Korean peninsula, gold will continue to maintain an underlying bid.

2. Stock Market Primed For A Correction

There are numerous factors that could trigger a pullback in the stock market from the debt ceiling standoff to new developments in North Korea to disappointment over the lack of economic stimulus out of Congress.

It has now been 567 days since the U.S. stock market’s last 10% correction, which is more than 2 months longer than the typical time between corrections (515 days), according to The Stock Trader’s Almanac.

That simply means the stock market is due for a correction, a normal market event to let some air out of the balloon. Gold goes up, often significantly, when stocks fall. A correction in the stock market could propel gold sharply higher from current levels.

3. Weakness in the US Dollar

The U.S. dollar has been on a one-way train lower in 2017 and that’s bullish for gold. As the dollar weakens that makes the price of the yellow metal less expensive to foreign buyers and typically stimulates demand for gold.

This week’s surprise announcement of the resignation of FOMC Vice Chair Stanley Fischer (ahead of his term’s expiration in June) was seen as a potentially “dovish” shift for the Fed board members in the short-term. Fischer was known as neutral to “hawkish.” (Doves typically favor lower interest rates, while hawks tend to favor higher interest rates.) This latest development on the Fed could mean lower interest rates for longer, which is dollar-negative and gold-bullish.

“Everyone has a plan ‘till they get punched in the face” – Mike Tyson

What’s your plan to protect your assets? Are you comfortable with the exposure you have to the stock market? Do you need to increase your exposure to tangible assets? It might be time to revisit your “plan.” Don’t wait for the punch, activate the plan to protect yourself now.

In a recent post we explored how, despite conventional wisdom, the primary driver of gold’s price is supply and demand. Today, we’re seeing how this imbalance is forcing more aggressive mining operations. As investors continue to buy more gold, sending prices higher, mining companies are seeking more ways to source the precious metal. They’re digging deeper. Is some cases they’re digging into the ocean floor.

In an effort to boost resources Beijing is leveraging their state-owned shipyards and vessels to explore gold deposits beneath the ocean floor. This novel approach is possible due to recent innovations in mining. By widening the radius of their exploratory efforts, the country hopes to become a dominant gold metal supplier.

This push for more gold comes not just from its inherent value but from the ever-expanding technological industry. China is responsible for 95% of the metals used in all electronics products. Moreover, the World Gold Council reported that “Technology demand registered its third consecutive quarter of growth: up 2% to 81.3t. Growth in wireless charging and development of features that use LEDs boosted demand. New smartphone handsets supported chip production. “

Interestingly, efforts to move towards greener, more sustainable energy sources has done little to abate China’s resolve to dig. Rare earth metals, like gold, represent critical components in wind turbines and solar panels. One engineer from SMD, a deep sea vehicle manufacturer remarked that “China has more mining exploration areas in international waters than any other country — in line with its higher mineral demand.”

Meanwhile, in the U.S. equally intense efforts are underway to expand gold mining. Recently, Newcastle Gold Ltd has made a brazen move to widen their footprint. Originally, the operation was set to pull 10 million tons of ore from an area of land covering 8,300 acres. However, today, they’re pushing to expand this sizable effort with a bold request for expansion from the U.S. government. This development represents just one more link in a chain of miners seeking ways to satiate surging demand.

The Guardian recently reported that Romania’s prime minister has made moves to help miners in the area access “an estimated 314 tons of gold as well as 1,500 tons of silver,” which represents Europe’s largest known gold deposit. Mining company Gabriel Resources earned an exploration license in the late 1990s and continues to pursue opportunities in the region.

The resolve of miners across the globe to travel further, dig deeper and explore underscore just how healthy demand remains amid waning supply. In fact, appetites have risen so far that some countries, like France have had to take measures to squelch illegal mining. The country has dispatched armed forces in French Guiana where illegal operations have been in place for decades.

In aggregate, these measures have yielded increasing production in recent years. However, in time these resources will become scant and the infrastructure necessary to find them will become more intense. Gold investors stand to gain in such a climate.       

Gold recently reached its highest finish in 11 months after topping the $1,300 per ounce mark. These strong and consistent movements have reiterated to many the role of gold as an economic weathervane. “I would say it’s the low-yield environment, the trend of the dollar and strong growth in emerging markets [that are driving gold],” remarked the founder of Exante Data.

However, how certain can we be that these three popular “influencing” gears drive gold prices today?

Some have cited gold’s rise as a response to recent interest rate movements. However, history tells a different story. In fact, research has shown that from 1970 to 2015 the correlation between interest rates and gold prices is a scant 28%. Despite these figure, the myth of a long-standing inverse relationship between yields and bullion remains strong. Some attempt to assert an inverse relationship with a look back to gold prices in the 2000s because bullion prices increased as interest rates dropped. However, the confluence of these events has never been shown to be sustained. Moreover, they rarely occur in lockstep with one another.

Meanwhile, many believe the changing value of the US dollar is influencing gold’s price. While there may be a tenuous connection it is often overstated. In fact, there is reason to believe that the US dollar today exacts less influence than ever before. Part of this waning relationship is due to the diminishing role of the dollar as a world currency. This comes amid movements from central banks to purchase gold as a reserve currency instead of dollars. “Beware of simple maxims. Even as we look at the interplay of factors that affect gold, it is hard to ignore the voices of those who insist that the US-dollar is gold’s main and only driver,” explained the World Gold Council.

In reality, the relationship is more nuanced. “We generally see an inverse relationship between the gold and the dollar, but our analysis shows that this relationship is asymmetrical. Gold prices increase more when then dollar weakens than they fall when the dollar strengthens – and sometimes, gold and the dollar move in the same direction.” A simple rule of thumb doesn’t apply. In fact, a lessening reliance on the US dollar offers clues to what’s really influencing prices.

“One reason for gold’s renaissance as a monetary asset has been developing countries’ hesitancy about relying unduly on reserve holdings in dollars. China, in particular, seems to be following a strategy of using gold to counter the weight of the dollar,” explains The Financial Times. As emerging markets opt for bullion, rather than the dollar, gold is seeing demand push prices up.

The same article explains that central banks have added over 2,800 tons of gold since 2008. Today that figure is almost certainly even higher. All the action is in emerging markets. Meanwhile, developed countries are merely maintain their reserves. This dynamic illustrates the simple, more influential aspect: supply and demand. Rather than look to the dollar or fluctuations in interest rates investors need only consider supply levels and reinvigorated mandates from emerging countries to boost their gold reserves.  

“Blockchain” technology, a form of digital record-keeping, has increasingly become the answer to all the woes of the financial industry. Amid accounting scandals and unethical behavior in banking and trading, more people have turned to this public, distributed ledger. The basis of much of its appeal is the secured cryptography which forms the backbone of the system.

Recently, the Senior Vice President at Fidelity Labs remarked “blockchain technology will change the world.” Why does he believe this modern marvel holds such potential? “The big story is you can transfer value through software and software alone. This is a huge societal breakthrough,” he remarked. Bitcoin has become the most popular incarnation of this technology. However, can the modernity of blockchain be translated to the tradition of gold?

The CME Group, based in Chicago and Britain’s Royal Mint believes they can marry the two. Recently, they started to test blockchain as a capability for trading gold. The initial testing has occurred with a few unnamed major financial institutions. If successful, the system is scheduled for a full launch before the year ends. Each unit represents a digital holding of 1 gram of gold held in a vault.

Why is blockchain technology considered safe? The answer lies in its shared existence. That is, the system is decentralized, existing across a network of computers. Therefore, it’s not possible for one person to retroactively alter a transaction without simultaneously altering all preceding transactions which would precipitate the collapse of the system. Simply put, blockchain exists everywhere at once. Attempt to change something and everyone will know. Think of it as a digital hive.

“There is a higher level of traceability and audit that comes with blockchain technology because participants are provided with a permanent, immutable record of ownership and chain of ownership and custody,” remarked the chief operating officer associated with the gold blockchain project. While the promise of blockchain technology is encouraging many caution that we’re in the earliest years of its development.

In an interview Don Tapscott, the co-founder of the Blockchain Research Institute, explains that we still have progress to make with respect to the reinforcing structure of the technology. He warns that “This new community is in its infancy. Unlike the Internet, which has a sophisticated governance ecosystem, the whole world of blockchain and digital currencies is the Wild West.” Interestingly, one problem on the horizon, he posits, is that the popularity of the technology could be its own undoing. Block sizes will need to increase to accommodate a growing number of transactions.

For now, it seems blockchain technology and gold aren’t the perfect pair. While an evolved version of the tech might change this assertion it appears that today gold is still gold. Moreover, physical gold investors have a long way to go before being convinced that a portion of digital coding will instill the same confidence as bullion in a safe. Much like ETFs blockchain gold ownership undermines one of the most appealing aspects of the investment, its tangibility.

Amid recent exchanges between Trump and North Korea, many Americans feel that they’re on uncertain ground. Moreover, the stability of that ground becomes more tenuous with each passing day as the rhetoric climbs. Escalating remarks are prompting investors to question assumptions about their long-term investments. Can history offer any clues to understanding how gold performs during war?

Though today’s threats of war involve the U.S. we can infer wartime price movements based on other international conflicts. Why? Because gold is an international currency and therefore responds to major upheavals across the globe.

A volatile period in the late 1970s brought many serious conflicts. In 1978, we saw the Iranian Revolution. Then, 1979 brought the Soviet Union’s invasion of Afghanistan and the Iran-Iraq war. During this same period gold rose 23% in 1977, then 37% in 1978. However, the real ascent came at the end of the 70s when gold shot up 123%.

Fast forward to 1990. Iraq invades Kuwait, the Gulf War starts and gold increases. Though as the conflict drew to a close gold returned to its pre-war levels. This pattern resurfaced shortly after the September 11th, 2001 terrorist attacks when gold increased again.

Interestingly, history shows that perceptions of war are as influential to gold prices as war itself. That is, when investors believe that a war will be short-lived gold responds with a downward movement despite lack of a peace agreement. This is intuitive as many people view gold as a safe haven asset which serves to preserve wealth in times of geopolitical conflict. For example some analysts have noted that as rumors of war grew amid U.S.-Iran tensions in November of 2007 gold surged to a then 27-year high.

Interestingly, gold can become a weapon, of sorts, during war. In 2012 Syria was forced to sell a portion of their 25.8-ton gold cache to buoy their efforts in the wake of heavy sanctions from Western and Arab nations. Occurrences like this are hardly isolated. Prolonged periods of war can hasten the evolution world finances as was the case when England and France dueled for nearly three decades spanning 1688 and 1756.

Chris Blackhurst, writing for The Independent explains “this led to the Financial Revolution, and the creation of The Bank of England in 1694.” The intention behind the bank was to raise desperately needed money for the government. In his review of Kwai Kwarteng’s book War and Gold: A Five-Hundred-Year History of Empires, Adventures and Debt, he explains “So began a curiously symbiotic relationship – of war and finance, both needing each other. Always, in uncertain times, there was gold itself to fall back upon. To the current period, and there are those who will maintain that our policy in the Middle East resembles those conquistadors.”

In uncertain times investors are wise to revisit their diversification plans. The road ahead is uncertain. Rather than attempt to predict outcomes it’s important to ensure that one’s portfolio is positioned for all eventualities.