COT update: Silver surges without speculator backing as FX focus shifts to yen

Who is buying silver?

Commodities continued

Elsewhere, across the other metals gold saw modest net buying for a second consecutive week, lifting the net long to 139k contracts. This remains well below last year’s peak of 231k contracts but, given current prices, still represents a nominal exposure of USD 67 billion. Copper meanwhile saw light selling for a fourth week, reducing the net long to 61.7k contracts, down 19% since the 23 December peak.

In energy, length was added in both WTI and Brent, lifting the combined net long to 236k contracts from near flat just one month ago. Overall, the WTI net long represents only 2.7% of open interest, while the Brent net long of 217k contracts accounts for around 8%. The 14.3% spike in natural gas — which extended further later in the week — was met by reductions in both long and short positions, reflecting spiking volatility and possible concerns that the winter storm-related surge could prove short-lived.

Broad weakness across the agriculture sector triggered continued selling of soybeans and wheat, as well as across the softs, led by sugar and cocoa. The two notable exceptions were continued demand for soybean oil and hogs.

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.