Silver COT Report (as of Aug 19, 2025)

Price context:

• Open 8/13: 37.935

• Close 8/19: 37.332 (weekly dip)

• Now 8/25 @ 5:48am ET: 38.713 (snap-back rally)

Futures-Only Positioning

• Large Specs (Funds / Hedge Funds)

  • Longs: 68,102 (+1,850, +2.7%)

  • Shorts: 21,553 (–431, –2.0%)

  • Spreading: 14,232 (–1,970, –13.8%)
    🔑 Interpretation: Hedge funds trimmed complexity (spreads) and leaned directional long. Net spec long +2,281 — a meaningful increase despite price dipping. That’s conviction.

• Commercials (Producers / Banks — “Smart Money” Hedgers)

  • Longs: 45,127 (+3,796, +9.2%)

  • Shorts: 111,802 (+4,050, +3.8%)
    🔑 Interpretation: Both long and short hedging rose — but net commercial short barely budged (+254). Importantly, commercials added aggressive longs. Historically, when they increase long hedges into dips, it marks confidence that downside is limited.

• Small Specs (Retail / Smaller Funds)

  • Longs: 31,016 (–1,631, –5.0%)

  • Shorts: 10,890 (+396, +3.8%)
    🔑 Interpretation: Retail blinked. They reduced longs and even added some shorts. Classic whipsaw — selling into weakness while stronger hands were absorbing.

• Open Interest: 158,477 (+2,045, +1.3%)
  🔑 Interpretation: More contracts came in despite price slipping → liquidity expanding, not contracting. That’s fuel.

Futures + Options Combined

• Large Specs: Similar story — long builds (+1,073), short trims (–456), heavy spread unwinds (–2,414). Directional conviction is strengthening, but spreads thinning = traders taking clearer, bolder bets.

• Commercials: Longs +4,353 vs Shorts +3,602 → net short cover = bullish tilt.

• Small Specs: Longs –1,980, Shorts +300 — retail doubly skeptical.

• Open Interest: 184,520 (+1,032) → more positioning commitment, even in chop.

Connecting the Dots

• Price dropped that week (37.93 → 37.33).

• But funds and commercials bought, while retail sold.

• Now, price is back above 38.70, confirming who had it right.

This is the classic COT tell:

• Weak hands get shaken out on dips.

• Strong hands (commercials, funds) absorb contracts.

• Snap-back rallies follow — exactly what we’re seeing now.

The Big Picture (Aug 25, 2025 @ $38.71)

Silver’s resilience tells us something bigger:

• Retail capitulated, just as price turned back higher.

• Funds are stepping back into directional longs.

• Commercials quietly boosted longs — rare and bullish.

Combine this with the broader macro (Reverse repo lows, JGB/UST long-end pressure, record margin debt): silver is behaving like a pressure gauge on systemic leverage. When funding is fragile, smart money seeks ancient collateral. The COT shows they were positioning for exactly that while retail panicked.

🔥 Bottom Line:
Last week’s price action confirmed this was a shakeout, not a breakdown. Specs and commercials positioned for resilience, retail sold the bottom, and price now proves the playbook right. With open interest rising and commercials leaning long, silver’s base layer role in the collateral chain is screaming louder than ever.

The through-line: leverage, term stress, and a thinner brake

Reverse repos ≈ $36.3B (sustained break below $100b like we saw in February)
When cash sits in the Fed’s RRP, the Treasuries MMFs receive are non-rehypothecatable overnight. That sterilizes collateral and quietly caps leverage.

At ~$36B, that brake is basically off. Those same Treasuries now live on dealer balance sheets where they can be pledged, re-pledged, and chained through basis trades, ETF creations, and margin loans. Collateral velocity is higher by design — great in calm seas, pro-cyclical in stress.

SOFR plumbing: 4.32% with ~$2.70T rolling nightly
This isn’t “extra” liquidity; it’s just-in-time funding. The system’s pulse is now 24 hours.

If haircuts nudge up, lender limits tighten, or a hot CUSIP goes more “special,” funding costs jump tonight. With the reverse repo cushion tiny, there’s less inert collateral to absorb that shock; it must reprice in the private chain.

3Y SOFR–OIS ≈ 28.8 bps (sticky, high)
Call this the term anxiety tax. Lenders are charging a premium to extend funding beyond “just tonight.”

That raises the structural cost of running leverage as a business and compresses risk budgets before any headline shock.

10Y swap spread ≈ –26.8 bps (deeply negative)
A sustained negative spread is a tell: balance-sheet scarcity in cash Treasuries and a preference for synthetic duration.

When the street avoids warehousing real bonds, it leans harder on swaps and repo — precisely where funding frictions bite first.

Long ends in tandem: JGB 30Y ~3.21%, UST 30Y ~4.89%
Japan’s long end hovering near all-time highs withdraws a traditionally price-insensitive bid for U.S. duration (think lifers/insurers) and raises the hurdle for hedged Japanese flows into USTs.

Higher long yields mark down dealer inventories, push VaR up, and lift haircuts, which feeds back into repo costs. With RRP small, there’s less official ballast; the repricing happens on private balance sheets.

Margin debt: new all-time high
This is the equity side of the same oxygen line.

Record margin means more portfolios are tethered to nightly funding via broker pipes that ultimately connect to the same dealer balance sheets financing repo.

When stocks wobble, margin calls demand cash — and that demand arrives through the same channels that fund collateral trades. Two pyramids, one air hose.

How these pieces amplify one another

1. RRP low → collateral velocity high
   More “live” Treasuries circulate through dealers.

   1. That raises system capacity and sensitivity: small changes in haircuts, specials, or limits now propagate further because more balance sheets are using the same collateral more often.

2. SOFR redline + 3Y SOFR–OIS blown out
   A system living on $2.7T overnight rolls is already running hot.

   1. The term premium says, “Turbulence is ahead.” That combination is telling you leverage must be rolled and it’s costlier to extend. It’s manageable — until it isn’t.

3. Negative swap spread + rising long ends
   Dealers prefer synthetic hedges while the cash bond market thins out.

   1. Then a long-end jolt (JGB/UST, auction tail, convexity flows) marks inventories down → VaR rises → gross exposures get cut → haircuts ratchet higher → repo specials richen → funding costs jump. With reverse repos drained, there’s no deep inert pool to buffer; the move hits P/L and funding immediately.

4. Margin debt at highs ties equities to repo
   An equity drawdown isn’t “just sentiment.”

   1. It forces cash out of the same pipes that fund repo, which can push the most liquid collateral (USTs) into selling — a classic path from equity stress → rates vol → higher funding costs → more de-grossing.

What this means in practice (not doom, just sensitivity)

• Liquidity is real, but it’s fast. We’re running a high-throughput, high-dependency system. It works — as long as the nightly roll machine hums.

• Term stress is embedded. The 3Y SOFR–OIS premium says desks are pre-tightening risk budgets. That limits the street’s shock-absorption capacity.

• Backstops are thinner. A small RRP means less sterilized collateral. The Fed still sets price (rates), but its quantity lever over rehypothecatable collateral is diminished.

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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.