Silver (XAG\/USD) extended its fall on Wednesday, trading near $58.45. The metal stayed under pressure as remarks from US President Donald Trump revived fears of renewed conflict in the Middle East, a backdrop that supported the US Dollar (USD) and lifted US Treasury yields.<\/p>\n\n
Trump said the memorandum of understanding intended to end the conflict with Iran is \u201cover\u201d and that he no longer wants talks with Tehran. He also said the United States (US) could carry out new strikes against Iran as early as tonight, suggesting strategic infrastructure could be targeted, including the electricity grid, water treatment facilities and Kharg Island, Iran\u2019s main oil export terminal. With the Strait of Hormuz in focus, worries over oil-supply disruption have lifted energy prices and stoked inflation expectations, potentially giving the Federal Reserve (Fed) more scope to tighten policy, which tends to weigh on non-yielding silver. Attention now turns to the Fed\u2019s June meeting Minutes for guidance on whether rate cuts remain on the table if energy-driven inflation persists.<\/p>\n\n
Given the renewed geopolitical tensions, we are positioning for a stronger US Dollar and potential weakness in silver. The threat of conflict tends to drive a flight to safety, but in this case, it’s benefiting the dollar more than precious metals. We are therefore cautious about taking on new long positions in silver futures at these levels.<\/p>\n\n
This uncertainty significantly increases expected price swings, which we see reflected in the derivatives market. The CBOE Silver Volatility Index (VXSLV) has already climbed over 15% this past week to 34.5, signaling that options traders are pricing in larger movements. This makes buying protective puts on silver ETFs a prudent hedge for any existing long exposure.<\/p>\n\n
The risk of higher oil prices, with Brent crude now trading over $102 a barrel, complicates the inflation picture for the Federal Reserve. Historically, energy-driven inflation shocks, like those in the 1970s, have led to aggressive monetary tightening, which is bearish for non-yielding assets. We are watching for any signs that these higher energy costs are becoming embedded in core inflation readings.<\/p>\n\n
Ahead of the Fed’s June meeting minutes, we are anticipating a spike in volatility. We believe a straddle strategy, using options that expire next month, could be effective to capitalize on a sharp move in either direction. The market is divided on whether the Fed will prioritize fighting energy-led inflation or supporting growth, and the minutes will provide critical guidance.<\/p>\n\n\n\n