Trader: Gold is about to break out—here's why

After a strong start to the year, gold prices have been range bound—but that's all about to change, according to one technically minded trader.

"The gold market is about to make a move up," Todd Gordon said Wednesday on CNBC's "Trading Nation."

Gordon noted that gold prices surged more than 20 percent from the start of 2016 to the year-to-date high last month, but as equities inch closer to all-time highs, the momentum in the safe haven asset has stalled.

"I'm starting to see an inter-market warning sign between the stock market and gold," the founder of said. "The S&P 500 might be reaching a top," and that means the gold rally will resume.

Read MoreBy this measure, the S&P 500 is overvalued by 72%

On a chart of the S&P 500 versus the GLD, the ETF that tracks gold prices, Gordon pointed out that the GLD is holding firm support, while the S&P looks to be hitting resistance.

"It might be time to pare back on these long positions in the stock market," said Gordon, a CNBC contributor. Meanwhile, he added, "Gold is sitting on this trampoline of sorts, which could launch it on the next move up."

To play for the next leg higher in gold, Gordon recommended buying the GLD June 120/122 call spread for 90 cents. This is a bullish strategy where a trader will buy a call and sell a higher strike call of the same expiration to offset the cost. The goal in this instance is for the GLD to rise to the higher strike by expiration, or to 122 in eight weeks. That's another 2 percent from current levels and puts gold back at year-to-date highs.

"We will look to ride this trade up or extend it if we are right on the S&P," Gordon concluded.

On the other hand, not everybody is so bullish on gold:

Read MoreStrategist: Why you need to 'stay away' from gold


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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