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Why this top technician recommends buying gold now

Gold suffered another tough session Monday, dropping nearly 2 percent following a bad week. But one of the most respected technical analysts on Wall Street says it's high time to buy in. Indeed, Sterne Agee chief market technician Carter Worth predicts that gold will rise about 15 percent from current levels.

After a painful 2013, bullion was finally finding some strength in the beginning of 2014. The key, for Worth, was that the metal was able to turn around a grim trend.

"When you're cascading, you make a low and then you violate it. And make a low, and then violate it. Make a low, and then violate it. Low after low," Worth said Friday on CNBC's "Options Action." "But then, we have this massive low in June, as everyone knows, and again, we have a rally. But this time, we don't violate. So we have a well-defined double bottom."

For Worth, the fact that gold—and the SPDR Gold ETF, which is what he charts—found support at the prior low around $1,180 is a clear indication that the selling is over.

This is emphasized by gold's break of its persistent downtrend. After it bounced off of that low again in December, gold was able to move above the bearish trendline that had dogged it.

"It's a major break above the downtrend line," Worth said. That shows "the import of the strength that begin this year."

Finally, Worth points out that gold's 150-day moving average has stopped declining, and has gone flat.


That transition in the moving average "is the definition of what I would characterize as a bearish-to-bullish reversal," Worth said.

To devise a target, Worth then looks to where gold has been.

Gold futures peaked around $1,925 in September 2011, and bottomed at about $1,180 in June 2013. Worth expects gold to "retrace" about half of that move, bringing the metal back to $1,500.

"We'd play it on the long side," he said.

To capitalize on a potential upside move driven by sentiment, Mike Khouw of Dash Financial recommended buying the June 130-strike call for $3.50.

—By CNBC's Alex Rosenberg. Follow him on Twitter @CNBCAlex. Follow the show on Twitter @CNBCOptions.

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