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COT: Underinvested speculators fuel gold's latest surge

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds and other speculators across commodities and forex during the week to last Tuesday, February 27. A week that saw global equity markets continue higher while other markets traded mixed with bond yields higher and the dollar lower ahead of Thursday’s long-awaited US PCE core deflator print, the Fed’s preferred inflation gauge. Commodities meanwhile found a bid with rising energy, industrial metals and softs prices offsetting some weakness in precious metals and grains. Also in this, we take a closer look at gold which closed at a record high on Friday.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.

What is the Commitments of Traders report?

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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's 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

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.

This summary highlights futures positions and changes made by hedge funds across commodities and forex in the week to last Tuesday, February 27. A week that saw global equity markets continue higher while other markets traded mixed with bond yields trading higher and the dollar lower ahead of Thursday’s long-awaited US PCE core deflator print, the Fed’s preferred inflation gauge. Commodities meanwhile found a bid with energy, industrial metals and softs offsetting some weakness in precious metals and grains. 


The Bloomberg Commodity Index, which tracks a basket of 24 major futures markets split between energy (30.1%), metals (34.2%) and agriculture (35.7%), managed to reverse losses seen the previous week with broad energy gains, led by natural gas (+10%) and WTI (2.4%) and pockets of strength in wheat, softs and livestock offsetting weakness across precious metals.

On an individual level, hedge funds turned net buyers of WTI crude, natural gas, copper, corn, wheat and cotton, partly offset by net selling in Brent, silver, platinum, soybeans, cocoa and coffee.



What’s next after gold hits record closing high

In our latest commodity weekly, we highlighted gold’s resilience during February when the yellow metal ended up unchanged on the month despite the negative pull from a stronger dollar and rising bond yields, after rate cut expectations deflated with the first cut being delayed until June or later. Furthermore, so-called ‘paper’ gold investors in ETFs and futures have so far this year been net sellers of gold, in ETFs by around 100 tons while speculators in the futures market have halved their net long after selling around 190 tons. We also reiterated our patient stance regarding the timing of the next move higher towards and beyond the December 4 records at USD 2,135 in spot and USD 2,152 in COMEX futures.

Ahead of last Thursday’s long-awaited US PCE core deflator print, the Fed’s preferred inflation gauge, gold had behaved like a coiled spring, wanting to trade higher despite yield headwinds, but held back by worries about an inflation surprise. However, with the number in line with expectations, gold started a move that accelerated on Friday when the yellow metal reached the December 28 high at USD 2,088, before closing at a record USD 2,082.90. This after a weaker ISM manufacturing and the revision to University of Michigan sentiment numbers garnered a dovish reaction, sending yields and the dollar lower.

Overall, these developments point to a continued strong underlying physical demand from central banks and retail buyers in Asia. In addition, we believe that heightened geopolitical tensions around the world have reduced the short-selling appetite, basically all strengthening gold’s current buy-on-dips credentials.

Our short- to medium-term technical outlook for gold can be found here

Gold's small year-to-date gain has occured during a period of multiple headwinds from a stronger dollar to sharply higher bond yields and lower US rate expectations. Adding to this a 100 tons outflow from ETFs and near 200 tons of hedge fund selling via futures
Energy: Buying of WTI (+41k) and selling of Brent (-17.5k) lifted the combined net long to 430k, a four-month high while a 10% jump (Chesapeake production cut announcement) helped drive a 30% reduction in the net short
Metals: A small 6% increase in the gold long to 68k left speculators unprepared for the end of week price spike. Even more so in silver where they flipped their position back to a 9.5k net short. Copper buying saw the return of a net long for the first time in eight weeks.
Grains: In corn, non-stop selling since December finally paused with short covering demand emerging after the net short hit a record in the previous week. Overall, the grains sector saw a small 17k net increase with the buying of wheat offsetting another extension of the soybean short to near a five-year high.
Softs: Long liquidation from speculators continued as the net long slumped to an 11-month low. Once again highlighting the recent parabolic rise being driven by producers unwinding short positions (hedges). Weeks of non-stop buying lifted the cotton long to an October 2021 high.
Forex: The non-commercial dollar long vs 8 IMM futures and the dollar index reached a three-month high at USD 2.7bn, driven by selling of EUR, JPY and CHF and only partly offset by small demand for AUD and NZD

Commodity articles:

1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
29 Feb 2024: 
Podcast: Why speculative interest is important to understand
28 Feb 2024: 
Oil price stuck in neutral despite underlying strength
27 Feb 2024: 
Resilient gold market defies lower rate cut predictions
22 Feb 2024: 
Copper short squeeze fades ahead of key resistance
21 Feb 2024: 
Gold's resilience despite recent futures and ETF selling
20 Feb 2024: 
WTI crude eyes resistance amid improved signals
16 Feb 2024: 
Commodity weekly: Grains tumble; Industrial metals eye China boost
15 Feb 2024: 
US rate cut delay drives gold below $2000
13 Feb 2024: 
Video: What is driving Cocoa's sweet price
9 Feb 2024: 
Commodity weekly: Refined product strength lifts crude
9 Feb 2024: 
Podcast: Year of the metals
7 Feb 2024: 
Crude oil supported by tightening fuel outlook
6 Feb 2024: 
Gold and silver turn defensive on reduced Fed rate-cut optimism
2 Feb 2024: 
Commodity weekly: Tight supply adds fuel to uranium and cocoa rally
1 Feb 2024: 
Commodities: January performance and ETF flows

Previous "Commitment of Traders" articles

26 Feb 2024: COT: Record corn short, cocoa surge no longer supported by speculators
19 Feb 2024: 
COT: US inflation surprise drives broad selling of metals
5 Feb 2024: 
COT: Speculators chase false crude break; grain short extends further
29 Jan 2024:
 COT: Squeeze risks after funds sold into rising commodity markets
22 Jan 2024: 
COT: Commodities short-selling on the rise amid China woes and Fed caution
15 Jan 2024: 
COT: Grains sector slump continues; Mideast risks lift crude demand
8 Jan 2024
COT: Weakest commodities conviction since 2015


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