Gold Intermarket: US 5Y-5Y forward inflation expectation rate points to ‘bear trap’

As per St. Louis Fed data, 5-year-5-year Forward inflation Expectation Rate has risen from 1.4 (June levels) to 2.10 level. The rise has been sharp post-Trump victory in Presidential Elections.

On the other hand, gold topped out in June/July at around $1375/Oz and has been falling sharply post-Trump victory.

However, the inverse relationship between forward inflation expectation rate and gold contradicts the positive correlation seen from 2011 to mid 2016.

Gold topped in late 2011 at $1920/Oz. Meanwhile, 5Y-5Y forward inflation expectation rate topped out at around 3.00 levels in April 2011. The direct/positive relationship makes sense, as gold is a hedge for inflation.

This, forces to consider the possibility of a ‘bear trap’ in gold. The yellow metal may do a ‘catch-up job’ with rising 5Y-5Y inflation expectation rate.

Comparing 10-Year inflation breakeven rates (published by the St. Louis Fed) to gold also shows a possible bear trap in the yellow metal.