COT: Dollar shorts & silver longs cut in week of WSB mayhem
Head of Commodity Strategy
Summary: This update highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, February 2. A week that saw the dollar jump to a six-month high while bond yields and commodities ticked higher on renewed reflation focus. Also a week where traders reacted to the rwallstreetbets attack on shorted stocks and silver.
Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, February 2. A week that saw stock markets trade lower on what turned out to be short-lived deleveraging concerns, after the rwallstreetbets (WSB) group on social media inspired attack on shorted U.S. stocks triggered some major hedge funds losses. The dollar jumped to a six-month high while bond yields ticked higher on renewed reflation focus. Commodities traded mixed with losses in metals, minus silver, being more than offset by another strong week across the energy sector.
Speculators maintained an unchanged but still record long exposure across 24 major commodity futures. Another week of strong buying across the energy sector was joined by livestock to offset reductions seen in metals, grains and softs.
Most in demand was natural gas where an 8% price jump triggered a 46.4k lots increase in bullish bets to 327k lots. Crude oil net longs increased as prices continued their month-long rally in response to tightening market conditions supported by Saudi production cuts and strong Asian demand. The combined net long in Brent and WTI rose 18k lots to reach a one-year high at 698k lots.
Silver’s social media driven rally and subsequent dump was captured in last weeks data. Given all the focus on the so-called and non-existent bullion bank naked short, it is worth mentioning the changes seen in COMEX silver futures last week. Producers took advantage of the rally to increased their net short hedges by 5% to -55.6k lots, speculators (tracked in this report) also sold into the rally and reduced their net-long by 8% to 40.6k lots. Swap dealers or banks meanwhile cut their net short by 8% to -19.8k. As highlighted in updates last week a net short which is less than 20% of the daily silver futures turnover. In other words, a position that never could trigger the squeeze that the social media dreamt up.
Especially not during a week where the other key drivers, such as the dollar and bond yields both continued to sap interest in gold. The yellow metal dropped 1.2% during the week while speculators cut bullish bets by 9% to 106k lots, near the lowest recorded since June 2019. Copper’s China liquidity squeeze related weakness only triggered a 1% reduction with strong underlying fundamentals awarding the bulls after the metal recovered strongly ahead of the weekend.
A week of broad dollar strength saw the net short against ten IMM currency futures and the Dollar Index reduced by 11% to $31.9 billion, a seven week low. The bulk of the change occurred in EURUSD where the combination of longs being cut and fresh shorts added reduced the euro net long by 17% to 137k lots (€17.1 bn), the least bullish since mid-November. Changes in the other crosses were muted with the exception of the Swiss francs where speculators increased their net long by 45% to 14.6k lots. Despite trading a touch lower, the CAD long reached a one-year high at 16k lots.
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)
The reasons why we focus primarily on the behavior of the highlighted groups are:
- They are likely to have tight stops and no underlying exposure that is being hedged
- This makes them most reactive to changes in fundamental or technical price developments
- It provides views about major trends but also helps to decipher when a reversal is looming
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.