COT: Gold long extends further; Ag selling picking up speed

Ole Hansen

Head of Commodity Strategy

Summary:  Futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, May 18. A relatively quiet week ahead of Wednesday's crypto collapse and FOMC minutes saw stocks, bonds and the dollar trade softer, while the biggest changes were seen across the commodities sector where the month long synchronized rally increasingly showed signs of running out of steam.


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 and forex up until last Tuesday, May 18. A relatively quiet week ahead of Wednesday’s crypto collapse and FOMC minutes saw stocks, bonds and the dollar trade softer, while the biggest changes were seen across the commodities sector where the month long synchronized rally increasingly showed signs of running out of steam.

Commodities

The Bloomberg Commodity index dropped 0.7% on the week as an emerging correction across agriculture commodities, led by soybeans and corn off-set gains in energy and precious metals. In response to these developments, hedge funds cut bullish commodity bets for a second week with the total net long across 24 futures contracts falling by 4% to a four-week low at 2.4 million lots. Broad selling across all sectors except precious metals was led by corn (25.3k lots), soybeans (25.2k) sugar (20.8k) and crude oil (22.2k) with most of the buying concentrated in gold (11.3k) and natural gas (12.1k).

Energy: Speculators cut bullish oil bets for a second week with the combined net long in Brent and WTI falling by 22.2k lots to 634k lots to a six-week low. In Brent, the reduction was driven by increased short selling with the gross short rising to the highest since November. The short-term outlook has once again deteriorated with the prospect for rising Iran production and OPEC+ production increases hitting a market still lacking the synchronized global recovery in in demand. Despite a strong recovery in fuel demand across the U.S. and Europe, continued Covid outbreaks in Asia will continue to impact the short-term outlook and not least the recovery in jet fuel demand, which looks set be very slow with restrictions and lack of interest flying intercontinental not going away anytime soon.

Fuel products continued to be bought with the net longs in gas (143k lots) and NY Harbor ULSD (24.5) both reaching the highest levels in 30 months.  Natural gas meanwhile saw fresh buying as the contract made another and so far unsuccessful attempt to gain a foothold above $3.

Metals: Gold’s new found momentum helped drive a third consecutive week of fund buying, which resulted in the net long rising 12% to 107k lots, a 16-week high. Gold has not managed to put together a three week buying spree of this magnitude since last June, and it highlights the continued improvement in the technical outlook during a period of stable Treasury yields, a weaker dollar, and not least heightened volatility across crypto currencies. The improvement in the technical outlook was further confirmed this past week by the move above the 200-day moving average, last at $1845, and the breaching of the downtrend from the $2075 record high last August.

Silver gave back some its recently earned relative strength against gold in response to continued profit taking hitting the up some of the up until recently highflying industrial metals. The net long was cut by 3% to 46.5k lots while a second week of net copper selling reduced the net long there by 15% to 51.9k lots.

Agriculture: Emerging profit taking helped drive a 9% reduction to 963k lots in the net long held in ten major grains and soft commodities. Most noticeable was the accelerated net selling across the three key crops where 25k lots reductions in both corn and soybeans triggered a reduction in the net long to a December low at 458k lots. The bullish soybean momentum has eased with planting in the U.S. progressing at speed while wheat’s two-week decline of more than 11% has been the result of heavy rain in Kansas, the top growing state raising the prospect for record yields. Corn meanwhile managed to hold steady supported by tight supply with focus on Chinese buying, currently running at levels never seen before, and increased demand from the renewable fuel industry.

Forex

Mixed flows in the week to May 18 resulted in an unchanged dollar short position against ten IMM currency futures and the Dollar Index. Buying of EUR (5.9k lots) and CAD (7.5k) being offset by selling of JPY (9.2k) and GBP (3.3k).

From a ten-year high at $36.8 billion on January 19, the dollar short against the mentioned futures contracts dropped to a $5.2 billion low five weeks ago before short sellers re-emerged to take it back to the current $15.5 billion.

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 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

 

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.