Bears pile into gold, but it could be at exactly the wrong time

For gold bugs, it can't get much worse.

A brewing currency crisis and nascent signs of inflation — typically bullish catalysts for bullion — have failed to give gold much of a boost in 2018, having fallen 8 percent this year.

But one longtime chart watcher says that is about to change.

According to FactSet, the commodity just posted its third-straight positive session, the longest winning streak since April, and TradingAnalysis.com founder Todd Gordon says a key reversal in the dollar is about to send the metal even higher.

"[Gold shorts] are starting to cover," Gordon said Tuesday on CNBC's "Trading Nation." "Part of the reason why they're starting to cover is [because of] comments from President Trump" discouraging the Fed from raising rates.

President Donald Trump told Reuters on Monday he was "not thrilled" with Federal Reserve Chairman Jerome Powell for raising rates.

"We're starting to see a reversal in that dollar rally, which has been precipitated by the outlook of higher rates as well as pressuring that gold market," Gordon added. "So we're starting to see a bit of a reversal" in gold.

Gordon refers to a chart of the gold-tracking ETF (GLD) and the UUP, which tracks the U.S. dollar, to point out their inverse relationship.

Gordon believes the dollar drop will continue, and therefore he wants to be long GLD. He sees a base of support forming at around $111 and $112.

As a result, Gordon wants to sell the September monthly 113-strike put and buy the September monthly 111-strike put for a credit of 77 cents, or $77 credit per options spread.

If GLD were to close above $113 on Sept. 21 expiration, then Gordon would make the $77 credit on the trade. If GLD were to close below $111, then Gordon would face a maximum loss of up to $123.

The trade: Gordon is suggesting selling the September monthly 113/111 put spread in GLD for about $77 credit per options spared.

Bottom line: Gordon sees GLD rallying above $113 on Sept. 21 expiration.

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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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