Silver (XAGUSD) is up by over 5% on Wednesday after the U.S. submitted a revised peace proposal to Iran to end the war and reopen the Strait of Hormuz.
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Forget margin or options. Here's how the pros trade QQQSilver has responded to the indirect effects of the proposal. A reopening of Hormuz could lead to lower energy prices and inflation. With lower inflation, the Fed has more leeway to cut interest rates. Silver tends to benefit when interest rates are lower because the opportunity cost of holding it compared to interest-bearing assets, like U.S. Treasuries, is lower.
Rate Cut Odds Edge Higher as Dollar Weakens
While the most likely outcome on the CME FedWatch tool is to hold rates steady for the rest of the year, the odds of one rate cut by year-end rose to 11.4% from 7.7%.
A weaker U.S. dollar is also supporting the precious metal, with the U.S. Dollar Index down by 0.4% on the day. Since silver is traded globally in dollars, it becomes cheaper for foreign buyers when the dollar declines. Silver is also viewed as a hedge against the dollar.