Head of Commodity Strategy
To download your copy of the Commitment of Traders: Commodities report for the week ending June 12, click here.
Hedge funds increased bullish bets across 24 major commodities by 14% to 936,442 lots during the week to July 31. According to the latest data from the Commodity Futures Trading Commission and the Intercontinental Exchange, the sectors seeing most of the increase were energy led by gasoline and grains led by corn and wheat. The net-selling of metals was solely driven by gold, with both silver and copper being bought. Soft commodities with the exception of cotton remained under pressure.
The combined net long in WTI and Brent crude oil remained close to unchanged for a third consecutive week. This as trade war and growth/demand concerns continued to off-set the potential bullish impact of supply disruptions related to Iran and Venezuela. Last week, a reduction of 5,383 lots in WTI was off-set by a rise of 4,706 lots in Brent crude oil. The current lack of direction was highlighted in Brent where both long and short positions were reduced.
Hedge funds continued to sell gold with the net-short hitting fresh records. The 51% jump in the net-short was primarily driven by another jump in the gross-short to 153,596, also a record. A strong dollar, not least against the Chinese yuan, and a continued focus on rising US rates, robust US stocks, and a lack of inflationary pressures have all conspired to reduce gold’s appeal as a safe haven and diversification product.
The selling continued to be concentrated against gold with silver – despite it's being as weak as gold – seeing a 41% reduction in the net-short last week. The current net-short of just 6,678 lots is just 17% of the record set three months ago.
HG copper was bought for a second week after support was established below $2.70/lb. Selling pressure driven by escalating trade tensions and signs of a softening Chinese economy has at least for now been offset by potential supply disruptions from Chile where strike action at the world’s largest mine is looming.
Platinum saw its net-short being cut by 5% as the white metal continued its recovery. Not least against gold where the discount has fallen by $40 during the past month to $380 currently.
The recent surge in global wheat prices due to drought and adverse weather in some of the major growing regions helped more than double bullish bets on CBOT wheat last week. A 50,000+ net-long was last seen during the 2012 season when the US was hit by drought and wheat jumped above $9.4/bu, much higher than the current price of $5.55/bu.
Wheat’s rally together with emerging weather concerns for corn helped support a 60% reduction of the net-short while Chinese import tariffs on soybeans continued to hurt investor sentiment.
Sugar, cocoa, and coffee all remained under pressure from ample supply. Continued weakness last week resulted in fresh lows and continued selling, not least in sugar and cocoa. Funds have struggled to hold the right position in cocoa amid the roller coaster rise and fall seen so far this year. Following a 30% since the April peak, funds have yet to turn neutral with last week’s 45% reduction taking the net-long down to 13,163 lots.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
