By: Treasure Coast Bullion Group -

Silver prices have moved toward the lower end of a 16-month range, as investors have failed to incorporate the potential volatility that could occur on May 12. While President Trump has discussed his thoughts on pulling out of the Iran Nuclear treaty, there are many who believe Iran should not be trusted. Silver volatility is also very weak. There is little fear that silver prices will rise, and complacency appears to have settled in.









On Monday Israel Prime Minister Netanyahu provided the backdrop to help President Trump to pull out of the Iran Nuclear deal, which would generate significant volatility and likely catapult silver prices. The Israel PM Netanyahu said Iran had a secret plan to build nuclear weapons. He claims to have a half a ton of Iranian documents which show pictures that Iran had a secret project to produce and store nuclear warheads. He said Iran has been "brazenly lying" about their program. While most of the news is not new, the goal of the Israeli PM was to show the world that Iran is a liar.

What Will Happen if Trump Exits the Iran Nuclear Deal and Re-installs Sanctions

If Trump exits the deal approximately 500K barrels a day of Iranian oil will come off the market. With Venezuelan and Libyan oil on the decline this will propel oil prices higher. Historically, oil prices have moved in tandem with silver prices.





You can see in the monthly chart of oil and silver going back to 1994, that prices have moved in tandem up until the second half of 2017. While oil has moved higher, silver has been stuck in a range. A surge in oil prices above $70 per barrel will likely drive silver prices even higher.

Silver Volatility Remains Historically Low

The news that the Israeli’s provided helped boost silver implied volatility slightly higher, but it remains near 3-year lows. This level of implied volatility means that traders believe prices will move 18% from the current levels over the next 12-months. This compares to a 3-year low of 16% and a 3-year high of 35%. The average implied volatility over the past 3-year is close to 27%.





The Federal Reserve Will Likely Remain on the Sidelines

Another issue facing silver prices is the recent surge in the dollar index. This is not a safe-haven play, but instead a view that the Fed could be increasing interest rates to fast. Investors will get a much better sense of where the Fed stands following its 2-day meeting that ends on Wednesday May 2. The FOMC meeting is flying under the radar given the various factors that are overshadowing. No one is anticipating any rate action, nor any significant change in tone in the policy statement. And, there's no press conference this time around, nor any updates on forecasts. Though data has reflected a slowing in growth in Q1, much of the slide has been from robust levels. And, there is also support on the way from fiscal stimulus. Meanwhile, inflation has started to edge higher.

Summary

Silver prices have been range bound as volatility shrinks to 3-year lows. Prices could surge higher if President Trump announces on May 12 that he will pull out of the Iran Nuclear Agreement. Since oil prices and silver prices move in tandem a breakout in oil above $70 could help break silver out of its 6-month range.

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Good Investing,

Treasure Coast Bullion Group



