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A hidden driver could send gold soaring

The price of gold could see substantial upside as the U.S. dollar index continues sliding in value, some strategists are forecasting.

The greenback has declined nearly 9 percent against a basket of foreign currencies year to date as the likelihood of parts of President Donald Trump's economic agenda getting underway has been called into question, and the prospect of further interest rate hikes from the Federal Reserve has pulled back.

The dollar index could certainly drop to the 92 mark (about 1.5 percent below its closing price Wednesday of 93.40), said Phillip Streible, senior market strategist at RJO Futures. And though these levels are important to watch in the dollar, what's more interesting to him is the impact on gold prices and other commodities.

"We could really see other markets, like gold, push up through that $1,300 level. We could see silver recapture $18. We could see oil prices — they've already got some bullish fundamentals buoying them — but with the dollar selling off like this, you are probably going to see that … recapture $50 again," he said Wednesday on CNBC's "Trading Nation."

Gold rising to $1,300 per troy ounce would imply about 4 percent of upside from its settle price Wednesday of $1,249.40.

As the relative value of the U.S. dollar falls, the price of gold and other dollar-denominated assets typically rise. Of course, the currency and the commodity can also rise in tandem. In fact, Citigroup research analysts in March argued that the correlation between the U.S. dollar and commodities is effectively gone.

The dollar index was trading near 13-month lows by Wednesday's market close; the index has been consolidating in a range of about 92 to 100, pointed out Piper Jaffray chief market technician Craig Johnson.

This relative weakness in the dollar, Johnson said, has certainly helped base metals and boosted the energy sector quite a bit, too.

"We had a little bit of a fake topside breakout earlier in the year, in the dollar, but now we are coming back down in the lower end of this trading range and really re-testing this. From my perspective, we are going to test 92," Johnson said Wednesday on "Trading Nation."

The dollar index fell following the Federal Reserve's announcement Wednesday afternoon that it would leave its federal funds target rate unchanged, and that the winding down of its balance sheet would begin "relatively soon."

Johnson said the 92 mark, echoing Streible's outlook, is a meaningful level for the dollar index at this juncture.

"If we start breaking below that, I think you are going to see some consequences where people are going to really start to question the economy, the strength in it … but at this point in time I would be waiting for that confirmation at 92," he said.

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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.

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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