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The lightness of the correction in gold is very bullish for the metal as well as its ETF vehicles, and as this drought ends, the next big leg up may soon begin.

The two-week pullback in gold futures from the early February highs was very mild, as it also was in the most popular gold ETFs.

With less than a 3% correction from the highs, last week’s close suggested that the correction might be over. Tuesday’s strong opening and the close above the recent swing high supports this view.

The weekly and daily chart formations have indicated for several months that the drop from the early September highs was just a pause in the uptrend. These continuation patterns are one of my favorite formations to trade.

The completed flag formations on both the futures and ETFs have initial upside targets well above the September 2011 highs. Therefore, the two key gold ETFs, the Spyder Gold Trust (GLD) and the iShares Gold Trust (IAU), both look attractive for new purchases, as the recommended stops make the risk very manageable.

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Chart Analysis: The weekly chart of the gold futures shows the completion of the flag formation (lines a and b) in the latter part of January.

• The tight weekly ranges and triple "dojis” made a deeper correction less likely


• Once above the 2011 highs at $1,942, the 127.2% upside target is at $2,035


• As I noted in my article on longer-term Fibonacci projections, the next “major target is $2,274”


• The weekly on-balance-volume (OBV) closed last week very strong, as it shows a bullish zig-zag formation


• The weekly OBV is leading prices higher, even though the daily OBV (not shown) is still below its WMA


• There is short-term support for the April futures at last week’s low of $1,706, with more important levels at $1,652

The daily chart of the Spyder Gold Trust (GLD) shows the completion of the flag formation, lines d and e.

• There is near-term chart resistance at $173.80, and then further levels in the $175.40 area


• The flag formation has a 127.2% Fibonacci retracement target in the $196 area


• The daily OBV confirmed the price breakout as it overcame its downtrend, line f. The OBV is still below its WMA but has turned higher


• Short-term support now sits at $170.75 to $169.50, with more important levels at $166


• GLD’s recent correction held well above the 38.2% Fibonacci retracement support at $162.40, as the recent low was $166.17


• The breakout level (line d) and stronger support in the $158-$162 area

NEXT: An Alternative ETF with Strong Charts

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