Gold is breaking out, and a perfect storm may be brewing for a bigger rally

Gold is on a tear, and some market watchers see further upside ahead for the precious metal.

Gold rallied to its highest level in five weeks on Monday, tracking for its best quarter since the January-March quarter of last year. Larry McDonald, publisher of the Bear Traps Report, told CNBC's "Trading Nation" that gold is breaking out and could rally further. Here are his reasons why.

• Gold has broken out on a technical basis, due in part to a more dovish-than-anticipated Federal Reserve, trade war concerns brewing in Washington and a relatively weaker U.S. dollar.

• Gold is trading at an attractive juncture, just below its 2017 peak, and may be expected to move higher in the coming weeks. Gold has gained 3.5 percent this year.

• Investors have recently piled into one popular gold miners exchange-traded fund, the GDX. These flows increased the fund's assets by its highest level since late 2017.

• Gold miners are cheap relative to spot gold, and may be one way to gain exposure to gold.

Bottom line: Gold, along with gold miners, may see a bigger rally in the coming weeks.

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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.

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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