Silver (XAG/USD) traded in a roughly $2 band on Monday, between $75 and $77, as markets waited for updates on US-Iran peace talks and interest rate decisions by major central banks. The Strait of Hormuz remained blocked.
Axios reported that Iran has sent a new peace proposal to the US, offering to end hostilities and reopen the Strait of Hormuz, while leaving nuclear talks for later. A second round of talks, expected over the weekend, was cancelled.
Market Awaits Key Catalysts
With traffic still blocked, crude prices stayed near $100 per barrel, raising stagflation concerns. This helped limit US Dollar falls and kept gains in precious metals in check.
Attention later this week turns to the US Federal Reserve meeting. The Fed is widely expected to leave rates unchanged, while markets look for guidance as higher inflation has reduced expectations for monetary easing this year.
Markets are also focused on Jerome Powell, whose term as Chair ends in May. Kevin Warsh has been nominated to replace him next month, while Powell is due to remain a Governor until 2028, though President Donald Trump has threatened to fire him if he does not leave.
With silver trading in a tight $75 to $77 range, we see the market holding its breath ahead of two major potential catalysts. This consolidation suggests a significant move is building, and derivative traders should be preparing for a sharp breakout rather than continued sideways action. The current low implied volatility in short-dated options may be a deceptive calm before the storm.
The primary risk is geopolitical, stemming from the US-Iran peace proposal and the blocked Strait of Hormuz. We believe a positive resolution could cause crude oil to fall sharply from its current price near $100 a barrel, which would in turn reduce stagflation fears and weaken the U.S. dollar. Such a scenario would likely push silver decisively through the $77 resistance level.
Positioning For A Volatility Breakout
We remember the energy-driven inflation we faced back in 2025, when the Consumer Price Index remained stubbornly above 4% for two consecutive quarters, forcing the Fed to delay its pivot. Any sign that this pressure is easing will be seen as highly bullish for non-yielding assets like silver. The reopening of the Strait of Hormuz would be the most significant supply-side relief the global economy has seen in over a year.
This week’s Federal Reserve meeting adds another layer of profound uncertainty, especially concerning the bank’s leadership. While we expect the Fed to hold rates steady, any commentary on future policy or the transition from Chairman Powell will cause immense volatility. The market is pricing in just one rate cut for this year, a sharp reversal from the three cuts anticipated at the start of the year.
A surprisingly dovish tone from Powell, perhaps as a final act, would weaken the dollar and provide significant tailwinds for precious metals. On the other hand, a hawkish stance or increased political turmoil at the bank could bolster the dollar as a safe haven, pushing silver below its $75 floor. Given these binary outcomes, traders should view this as a moment of heightened risk.
Therefore, positioning for a breakout in either direction seems prudent over the next few weeks. We think buying volatility through long straddles or strangles on silver futures or related ETFs is a logical strategy. This allows one to profit from a large price swing without needing to correctly guess whether the catalyst will be a peace deal in the Middle East or a policy shock from the Fed.
