Despite my bias to see new all time lows in the dollar index, I think the dollar probably put in the three year cycle low last week. Sentiment at the time had reached multi-year lows and as of yesterday the dollar had moved back above the 50 day moving average.

If I’m right then this should usher in the next deflationary period just like the rally out of the `08 three year cycle low signaled a coming recession, the next leg down for stocks in the ongoing secular bear market, and a collapse of the CRB into it’s 3 year cycle low.

This should also drive gold down into it’s D-wave decline. Yesterday the miners made a lower low and this morning silver made a lower low. It’s probably only a matter of time before gold breaks below the $1462 pivot. That would confirm that gold is now in an intermediate decline and this late in the C-wave that would almost certainly turn out to be a D-wave correction.

The good news is that sometime in late June or early July we are going to get the single best buying opportunity we will ever get for the rest of this bull market.

At this point the goal is to preserve capital and get to that major D-wave bottom with plenty of dry powder.

Don’t let the title fool you, for reasons I’ve outlined in this weekend’s report I think gold likely has one more move to new highs before the D-wave begins. 

However the action in the dollar and silver this week have probably taken the parabolic phase of this C-wave off the table. Rather than the normal sharp spike up it appears that this C-wave is going to end with a more modest move than prior C-waves. That being said it did last much longer and gain just as much above the prior C-wave top as any other C-wave. So in terms of duration and magnitude this C-wave has fulfilled every expectation.

I’ve noted in the past that a D-wave is a regression to the mean, profit taking event. That regression tends to be most severe when the C-wave ends with a parabolic move. Action and reaction.

However this time it appears there will likely be no parabolic rally to top the C-wave. In that case the D-wave will probably be milder than prior D-waves. As a point of reference every D-wave so far has retraced at least 62% of the prior C-wave advance.

Without the parabolic stretch I think it’s likely that the impending D-wave will only retrace roughly 50% of this C-wave. If gold pushes up to a marginal new high slightly above $1600 (in the weekend report), then it will probably only drop to around $1250 which just happens to mark the upper boundary of last summers consolidation zone.

What should follow after that is a fairly strong A-wave surge. A-waves usually test the but don’t break to new highs. At that point gold will enter a long sideways period to consolidate the massive gains made during the this last C-wave. During this period it will get very tough to make money in the precious metals market. 

However there is still some upside potential once gold puts in the daily cycle low that is trying to form now. Great potential during the D-wave if you know how to use puts and excellent upside potential during the A-wave next fall, before the metals sink into the consolidation doldrums.

This year still has great opportunities left and of course we still have the next C-wave to look forward to in 2013. That one should make this C-wave look puny in comparison.

Gold is on day 4 of the decline into it’s daily cycle low. On average gold puts in a cycle trough about every 20-30 days. This one has stretched slightly long, no doubt driven by QE2. As a matter of fact almost all cycles have been stretched the last two years by the Fed’s printing activities. Consequently all markets have been swinging wildly between bullish and bearish extremes.

Think of it as a rubber band. The further you stretch it the harder it snaps back once the pressure is released. Gold and especially silver were stretched extremely tight during the last couple of months. Now that the profit taking event is here it is understandably severe simply because the upside was so powerful.

However QE hasn’t ended. So once the correction runs it’s course we should see another massive swing to the upside, again driven by free money and the extremes to which gold moves to the downside. The further the correction goes the more powerful the rebound will be once selling pressure exhausts.

It will also be driven by the many investors and traders that got thrown from the bull during the correction chasing as the metals surge higher out of the cycle bottom.

I’ve noted in the subscriber reports that gold will usually reach certain short term oversold conditions at daily cycle bottoms. We are now getting close to those conditions with this mornings move.

As you can see a daily cycle correction will almost always drive the 5 day RSI into oversold levels before bottoming. We also usually see a tag or penetration of the lower Bollinger band at daily cycle lows. As I write gold is about $1499/$1500. The lower Bollinger band will rise to about $1493 today.

Someone trying to pick a bottom should be fairly close if they buy on a touch of the lower Bollinger band.

Stocks and oil are also moving down into daily cycle lows. Oil especially is very deep in it’s cycle and due for a bottom soon. I would guess it will bottom within a day either way of gold. Oil is slightly ahead of gold and has already moved to short term oversold levels deep enough to form a cycle bottom. I doubt it will drop too much further than $105 and I certainly think buyers will step in at $100.

There is a possibility that gold, stocks and oil will all form a bottom sometime tomorrow on the May jobs report. If the report is weak (which is a strong possibility) we could see a gap down open. If the gap is recovered by the close and especially if the market can close positive we will probably have our cycle low in place.

We would then need to see a swing low on Monday to get the first confirmation that the correction has run it’s course.

After what should be a brief pause this week commodity markets will move into the greatest rally of the last decade. As usual I will stay focused on the precious metal markets. They have been the leaders during this entire move out of the `08 bottom and they will see the largest parabolic move of all commodities during the final leg up.

I’ve noted in the past that consolidation size is usually a good leading indicator of how large the following rally will be. Gold just consolidated for 5 months. That is going to produce a massive rally. It’s already produced a large move and it’s just started.

Gold and especially silver have already come much further than I originally expected at this stage of the game. I was looking for gold around $1650 and silver at $50 by the top of this C-wave. Silver has already reached that level and gold tagged $1575 yesterday. This has unfolded in only the first two daily cycles. The third daily cycle is where the real parabolic gains are going to occur.

The third and last daily cycle higher during the semi parabolic move in `09 added 200 points in a little over a month.

The coming parabolic move will be significantly more powerful than what happened in `09 as this will be a final C-wave move. We should easily see a 300- 350 point move in gold and it’s anyone’s guess as to how far silver rallies during the final parabolic finish. $65 or even $70 isn’t out of the question.

Now for the downside. The final dollar collapse is also going to drive the rest of the commodity markets wildly higher. That will include the energy markets. Oil is due for a brief move down into its cycle low this week too. Once that has run it’s course we will see oil soar higher, possibly even reaching the `07 high of $150.

$150 oil collapsed the global economy in `07 and the economy was in much better shape with much lower unemployment than it is now. In an environment of already high unemployment $150 oil and soaring food prices are going to drive the global economy into a recession even worse than what we suffered in `08. 

Social conflict in the middle east and many emerging economies is going to intensify. People in depressed countries already can’t buy food to feed their families, what do you think will be the response if food prices double again?

The world is about to pay the price for Bernanke’s attempt to print prosperity and it is going to be a very steep price and cost many lives.