It's been a great year for the gold miners, and according to strategist Larry McDonald, it's about to get even better.
The GDX gold miners ETF, a popular way to play the group, has risen 68 percent in 2016. But the volatile stocks have fallen significantly since their mid-August peak, at which point the GDX was up more than 125 percent in 2016.
Unsurprisingly, the move has come as gold took a major leg lower, pushed down by a serious rise in bond yields and in the U.S. dollar. These moves, in turn, have come as expectations for a 2016 Federal Reserve hike have risen.
Yet McDonald thinks that these expectations will fall by the wayside, as they have so many times before.
"The market's going to push the Fed until the Fed breaks and doesn't hike," the strategist said Friday on CNBC's "Trading Nation," referring to the theory that a rise in volatility he expects to see will change the central bank's plans.
When that happens, "gold miners will be the best place to be," he added. "The risk reward even [in] the shorter term is quite good as the market is almost fully in the December hike camp. If those chances are to change to the downside, miners will be a great beneficiary."
Gold, and the companies that dig it out of the ground, are highly exposed to Fed policy. Fed rate rises mean higher long-term yields and a stronger dollar, both of which hurt gold, a commodity that yields nothing and is denominated in dollars. In fact, McDonald goes so far as to say that trading gold miners is akin to "literally trading Fed policy."
With Fed policy expectations set to adjust, "gold miners are a screaming buy," McDonald wrote to CNBC on Friday.
Many analysts appear to share a similar viewpoint. S&P Global equity chief investment officer Erin Gibbs notes that analysts believe the stocks in the GDX have a median upside of 37 percent, based on their target prices.
"It seems that Wall Street analysts agree with Larry," Gibbs wrote to CNBC on Friday.
Friday on "Trading Nation," Gibbs added that while valuations appear high, expectations are for a substantial rise in earnings — and "considering these earnings expectations, I think it's definitely a safe bet for the fourth quarter."
McDonald's bold calls on the gold miners have proven profitable this year. In January, as the group languished, McDonald said that buying the gold miners was "the best trade in the world." Then in June, as the miners were approaching (but had not yet achieved) their high, he called the stocks "very overbought."
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