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The gold market ended last week on a bit of a weak note, as prices slumped by $5.60 per ounce in light holiday trade. As investors return to the financial markets this week, however, volumes could see an uptick as end-of-year positioning gets underway.

The next several weeks could see a significant increase in market volatility. The benchmark stock indexes have already shown an inability to hold a strong rally, and the CBOE’s VIX index recently staged an upside breakout on the daily charts. Unfortunately for stock investors, the markets could have a long way to fall before finding a long-term bottom.

One of the key drivers of recent market volatility has been the notion of rising rates. The Fed has already lifted its key interest rate twice this year and has one more hike ready to go next month. The Fed has also maintained its plans for another three rate hikes next year, although those plans are now facing some very serious scrutiny.

Although the central bank will almost certainly follow through with another hike at its next meeting, expectations now seem to be that the Fed will take a step back at that point and reassess its plans for next year. The central bank has faced a chorus of negativity surrounding its path towards policy normalization, and it seems more and more market participants from President Donald Trump to Mad Money host Jim Cramer are chiming in and voicing their opinions against further tightening from the Fed.

This criticism puts the Fed in an interesting spot. The central bank has gone out of its way in recent months to demonstrate its independence as it has asserted that further rate hikes are data-driven and remain appropriate. Recent stock market selling, however, might suggest that the Fed is moving too far too fast. Serious questions have been raised as to whether the economy can handle higher rates, and corporate valuations may need to see a much larger re-pricing given a higher cost of capital.

In other words, if the Fed does not back off on raising rates, recent declines in equities may be just the beginning of a much larger move lower.

Regardless of what the Fed does or does not do, the gold market seems to be in a position to benefit. Higher rates could send stock investors fleeing and could fuel significant risk aversion. This, in turn, could force a major asset rotation in which significant capital could find its way into gold and other perceived safe-haven asset classes.

If the Fed elects to hold off, or even decides to cut rates again, it could possibly buoy stocks but at the same time could fuel a major reversal in the dollar. The stronger dollar has been a major hurdle to higher gold this past year, and with that barrier removed the yellow metal could potentially see a swift and significant upside breakout. Resistance in the $1245 area remains the next upside target for the bulls.