COT: Brent preferred over WTI; Gold length at nine month high

COT: Brent preferred over WTI; Gold length at nine month high

Ole Hansen

Head of Commodity Strategy

Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, January 24. A week where the dollar and commodities traded steady as the China Lunar New Year got underway. Broad buying of commodities in recent weeks narrowed as speculators concentrated their buying interest in crude oil and fuel products as well as gold, copper, corn and cotton


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 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

 

Financial Markets Daily Quick Take
Saxo Market Call Daily Podcast


This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, January 24. A week that saw modest gains across stocks, with the tech-heavy Nasdaq the exception as it jumped 2.5% ahead of major earnings from tech titans starting with Microsoft. The dollar and commodities traded steady with the Chinese LNY having a dampening impact on activity. Bond yields traded softer as inflation pressures continued to ease driving speculation the FOMC may consider a one-and-done rate hike at their meeting this Wednesday.

Commodities
The Bloomberg Commodity Index (BCOM), which tracks a basket of major commodity futures ended flat on the week as continued gains in metals, led by gold and copper, as well as softs led by coffee short covering, were being offset by broad losses in grains and weakness in energy, primarily driven by another slump in natural gas. The prospect for a China reopening boost to demand for key commodities from crude oil and fuel products to copper and grains has been the main engine behind the strong start to 2023. However, as China emerges from a week-long holiday the hard work begins as a pick-up in activity on the ground is now needed to support and confirm the strong price gains and accumulation of speculative positions seen across several commodities this past couple of months.  

Speculators responded to these developments by turning more selective in their investment approach. The result being a week that saw additional length being added to crude oil, fuel products, gold and copper while the agriculture sector, with a few exceptions, saw net selling across all three sub-sectors of grains, softs and livestock. 

 

Energy

Money managers increased their net long position in Brent crude by 40k contracts to 252k, the highest since March, while the buying in WTI continued to be more muted with the net long only rising 6k to 188k contracts. The result being a 46k increase in the combined net long to 441k contracts to an 11-week high. Since early December funds have bought 153k contracts of Brent while the WTI length has only increased by 22k contract. During this time WTI’s front month discount has steadily been widening, to the current $7 per barrel while the Brent prompt structure has returned to backwardation while WTI remains in contango, both developments making Brent more attractive from a buy, hold and roll perspective.

The three fuel contracts saw net buying as well, led by RBOB and gasoil while the natural gas contract, despite another hammer blow of selling, saw a small amount of short covering.

Metals

The current preference for gold over the other two semi-investment metals of silver and platinum was on display once again last week. In the month to last Tuesday, silver and platinum traded lower by 1.2% and 1.5% respectively while gold rallied by 6.2%, and this discrepancy in performance helped drive another week of gold accumulation from money managers while silver and platinum length were reduced. The net long in gold jumped 14% to 107k contracts, a nine-month high.

Three weeks of strong copper buying has lifted the net long to near a 15-month high at 41k contracts. The bulk of that length having been added after the HG copper contract first broke the 200-day moving average at $3.85, and then the support-turned-resistance in the $4 area.

Agriculture

The grains sector, led by the soybean complex saw broad selling with corn being the notable exception. It is interesting to note that the CBOT wheat short reached a fresh 44-month high at 74k contracts, this in a week where the price of front month wheat dropped 2.3% before finding support at a trendline going back to January 2022. Following the latest rejection, wheat has subsequently moved higher to challenge resistance around the 50-day moving average, currently at $7.6.

Arabica coffee, another member of the trio of most shorted commodities, found support from an improved fundamental outlook, and the 5.8% rally during the reporting week supported a 9% reduction in the net short to 37k contracts. Short covering is likely to have continued in the days that followed as the price made further strides towards the next major hurdle at $1.75.

Forex

In forex, speculators were net sellers of dollars against the nine IMM forex futures contracts tracked in this. Adding changes in the Dollar index position, the overall change in the gross short was relatively small with buying of EUR and a further reduction in the JPY short to the lowest since March 2021 being somewhat offset by selling of CHF, CAD and NZD.

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.