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- 29% Surge in Spreads Ignites Silver’s $40 Breakout
29% Surge in Spreads Ignites Silver’s $40 Breakout
In one week, silver jumped +4.63%, smashed through $40 for the first time since 2011, and spreads exploded nearly +30% — a clear sign capital is migrating from neutral hedges to directional bets. With reverse repos down to just $20.997B, SOFR (overnight funding rate) pinned at 4.41%, and long yields grinding higher in both Japan (3.276%) and the U.S. (4.773%), structural strain is increasing. But that’s exactly what makes the opportunity so powerful. Gold and silver aren’t just hedges in this environment — they’re the base layer waiting to be rediscovered. As debt grows heavier and cushions vanish, the asymmetry is extreme: paper weakens, while real money stands ready to reprice dramatically higher.
Luke Lovett
September 08, 2025
What Changed Beneath the Surface (Futures & Options Combined)
Credit to SilverSeek.com for the above image.
Funds added with conviction, but still far from “max long.”
Large Specs: long +6,295 (+9.6%), short –2,512 (–10.5%) → net +8,807 (+14.6%). Gross longs now 71,630 — still 10–30k shy of “blow-off” territory (80–100k).Commercials hedged into strength (fuel, not cap).
Commercials: long –3,554 (–6.4%), short +1,940 (+1.7%) → net –5,494 (–6.7%). Their short/long ratio rises, classic pattern at the start of a new leg higher.Small Specs faded the rally. Long +1,829 (+5.5%), short +5,141 (+40.4%) → net –3,312 (–10.3%). Retail growing cautious as price rips = contrarian bullish.
Spreads came roaring back in the combined report. +8,289 contracts (+29.1%) → 36,758 total. Basis/calendar trades re-engaging around a breakout = volatility fuel.
Open interest rose meaningfully. Combined OI +12,859 (+7.1%) → 193,836. Price ↑ + OI ↑ = fresh directional risk, not just short-covering.
Signal | Latest Level | Interpretation | Zone |
|---|---|---|---|
10-Year Swap Spread | –24.6 bps | Still negative, though slightly less extreme. Confirms cash Treasury impairment: dealers continue to prefer swaps over warehousing bonds. | 🟠 Orange |
Reverse Repos (RRP) | $20.997B | Slight bounce, but still effectively empty. The Fed’s “overflow tank” remains drained — every dollar of stress must clear live markets. | 🔴 Red |
USD/JPY | 147.8 | Carry-trade fragility persists, volatility risk remains elevated. | 🟠 Orange |
USD/CHF | 0.7966 | Back under the 0.80 threshold — red zone. Persistent safe-haven demand signals systemic fragility. | 🔴 Red |
3-Year SOFR–OIS Spread | 25.25 bps | Still stretched versus calm norms. Market continues to price a heavy “future anxiety premium” into term funding. | 🔴 Red |
SOFR Overnight Rate | 4.41% | Pinned at fresh highs. Despite “ample reserves,” repo pipes remain tight, funding costs sticky. | 🟠 Orange |
SOFR Daily Volume (SOFRVOL) | $2.834T | Near record levels. Market chained to massive nightly rollovers — liquidity regime remains paycheck-to-paycheck. | 🟠 Orange |
SLV Borrow Rate | 0.80% (1.5M avail.) | Borrow costs spiking with availability tightening again. Signs of ignition in the silver collateral chain. | 🔴 Red |
COMEX Silver Registered | 195.28M oz | Stocks holding steady, but cushion remains wafer-thin versus leveraged paper positions. | 🟠 Orange |
COMEX Silver Volume | 75,041 | Moderate turnover, indicating digestion of prior momentum. | 🟡 Yellow |
COMEX Silver Open Interest | 156,745 | Still elevated. Leverage intact; directional positioning remains robust. | 🟠 Orange |
GLD Borrow Rate | 0.35% (5.6M avail.) | Borrow costs ticking higher, availability adequate. Funding pressure slowly building. | 🟡 Yellow |
COMEX Gold Registered | 21.3M oz | Flat, wafer-thin stocks compared to paper exposure. | 🟡 Yellow |
COMEX Gold Volume | 262,651 | Heavy turnover confirms active positioning and liquidity. | 🟠 Orange |
COMEX Gold Open Interest | 505,569 | At fresh highs — leverage and speculative activity robust. | 🟠 Orange |
UST–JGB 10Y Spread | 2.518% | Hovering close to fragility threshold. Below 2.5% = carry danger; flirting with that line. | 🟠 Orange |
Japan 30Y Yield | 3.276% | Pushing cycle highs. Ongoing upward pressure threatens global bond stability. | 🔴 Red |
US 30Y Yield | 4.773% | Long end remains heavy, near multi-year highs. Debt fragility at the global base layer remains acute. | 🟠 Orange |
Deep Dive - Silver Commitment of Traders Report - August 29th-September 5th
This was not a sleepy COT week — it was the tape breathing new life into silver’s bull engine.
Funds stepped in with conviction. Large specs grew their gross longs by nearly 10% and slashed shorts by over 10%, netting a +14.6% surge in exposure.
That’s not timid toe-dipping — that’s real money leaning long. And yet, with gross longs at 71,630, they’re still 10–30k shy of “blow-off” levels seen in prior manias. Translation: funds are buying, but they’re not even close to maxing out. There’s runway.
Commercials did what commercials generally do — hedge into strength. They cut longs by –6.4% and added shorts by +1.7%, netting a –6.7% shift against price.
But that’s not bearish — it’s textbook fuel. Every time commercials hedge early in a new leg, it sets the stage for forced rolling higher as price runs away. Their rising short/long ratio isn’t a ceiling — it’s tinder.
Retail blinked at the breakout. Small specs actually added 40% more shorts while price ripped through $40, flipping net –10.3%.
That’s retail psychology in a nutshell: fade the breakout, bet against momentum. And that contrarian caution is exactly what adds power to the move — because retail shorts become eventual cover fuel.
Spreads lit up like fireworks. Spread positions jumped +29.1% in the combined report — more than 8,000 contracts re-engaging.
That’s a big tell: calendar and basis trades don’t pile in unless they smell volatility. And they’re right — a breakout through $40 is exactly the moment you want spread exposure.
Open interest confirmed the shift. Open interest didn’t fall (short-covering) — it rose +7.1% (nearly 13,000 contracts). Price up + OI up = fresh directional risk, not exhaustion. That’s new money, not old shorts running.
The narrative is simple but profound:
Funds are adding, commercials are hedging, retail is fading, spreads are back, and open interest is climbing.
Price didn’t just pop — it broke a 14-year ceiling at $40 with participation that screams “beginning of a leg,” not “end of a move.” This isn’t ignition fuel running out. This is ignition fuel pouring in.
Macro Backdrop
Reverse repos are down to just $20.9B in a $29T Treasury market — essentially no cushion left. Any new stress now has to clear directly in funding markets.
Overnight funding is tight. SOFR (overnight funding) rate is at 4.41%, the highest since July, and daily rollovers near $2.83T mean the system depends on near record amounts of refinancing every night.
The 3-year SOFR–OIS spread at 25.25bps shows lenders are still charging a steep premium for term funding — a clear sign that balance sheet space remains scarce.
USD/CHF at 0.7966 highlights steady safe-haven demand, while the 10Y swap spread at –24.6bps shows dealers still prefer swaps over holding Treasuries themselves.
At the long end, yields are grinding higher — Japan 30Y at 3.276% and U.S. 30Y at 4.773% — a direct headwind to equities and credit valuations.
Silver’s collateral chain is flashing scarcity: SLV borrow cost up to 0.8% with only 1.5M shares left. Access to exposure is tightening even before price has fully moved.
Together, the signals show a larger system running on more and more leverage with less margin for error — and an environment where physical assets have room to reprice much higher.
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Luke Lovett
Cell: 704.497.7324
Undervalued Assets | Sovereign Signal
Email: [email protected]
Disclaimer:
This content is for educational purposes only—not financial, legal, tax, or investment advice. I’m not a licensed advisor, and nothing herein should be relied upon to make investment decisions. Markets change fast. While accuracy is the goal, no guarantees are made. Past performance ≠ future results. Some insights paraphrase third-party experts for commentary—without endorsement or affiliation. Always do your own research and consult a licensed professional before investing. I do not sell metals, process transactions, or hold funds. All orders go directly through licensed dealers.
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