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Technical trader is betting on more gains for gold – here’s why (and how)

Gold climbed back above $1,300 on Monday, and Todd Gordon says that thanks to technicals in both gold and the bond market, the yellow metal will continue its stellar year-to-date surge.

"We're seeing a pretty impressive test of the recent range highs, and I think that based on what the macro situation looks like, gold should push higher," he said Monday on CNBC's"Trading Nation."

The TradingAnalysis.com founder is looking specifically at a chart of the gold-tracking ETF GLD, and the ETF that tracks long-term bonds (TLT). While both have traded seemingly "in a fairly tight correlation" this year, GLD's 8 percent rally since the beginning of July has it outpacing TLT, creating a bigger divergence in both.

"What we see here is TLT is diverging just a bit, meaning we are approaching those June highs but have not broken out where GLD looks poised to continue on through," said Gordon. "So as both markets are pressing higher, that signifies a Fed that is perhaps on hold longer than we'd expect."

And a slightly more dovish tone from the Federal Reserve, according to Gordon, is the reason the dollar has suffered a "very sharp decline." The decline has served as a major driver for gold, given the historically inverse relationship between the dollar and bullion.

On the GLD chart, Gordon spots a "significantly technical area" near $126.

In order to play for a move back to that level, Gordon is buying the September 123-strike call and pairing that with the sale of the September monthly 126-strike calls for a total cost of $1.00, or $100 per options spread. That $100 will be lost if GLD closes below $123 on Sept. 15 expiration.

The trade breaks even at $124, which is the strike price of the lower call plus the per-share cost of the trade. And if the GLD closes above $126 on Sept. 15 expiration, Gordon will enjoy his maximum reward of $200.

Yet in order to minimize the chance of losing $100, Gordon has a "stop-loss" on the trade.

"If that $100 of options premium that we just laid out gets cut in half, so if it goes to $50, we're going to contain the risk and get out of the trade because the breakout doesn't look like it's happening," he explained.

GLD has surged over 13 percent this year and is currently sitting at levels unseen since November of last year.

2017 is set to be the first year in which gold has beaten the S&P 500 since 2011.

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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.

Brian Sullivan

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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