COT: Gold buying jumped ahead of CPI shocker

COT: Gold buying jumped ahead of CPI shocker

Ole Hansen

Head of Commodity Strategy

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.

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday,  November 9. The release of the report by the US CFTC was delayed until Monday due to a Federal holiday last Thursday. The week covered the run up to but not including last Wednesday's CPI shocker which helped send real yields lower and both gold and the dollar sharply higher. Already ahead of the data we had seen a near 0.25% tumble in US ten-year real yields as the market drove up inflation expectations.
 
Elsewhere it was a week where the general level of risk appetite supported higher stocks while the dollar drifted lower. In commodities the overall exposure across 24 major commodity futures held steady with net selling of energy, grains and softs being offset by demand for precious metals, not least gold, and livestock. 

Energy: Speculators turned small net buyers of crude oil for the first time in five weeks with WTI buying off-setting another week of Brent selling. The latter has now seen net selling for the past five weeks, resulting in the net hitting a one-year low at 240k lots or 240 million barrels. Gasoline and distillates together with natural gas were also sold. 

Crude oil update from today's Market Quick Take:
Crude oil(OILUKJAN22 & OILUSDEC21) has once again managed to bounce with Brent finding support ahead of $80 and its 50-day moving average. Higher gas prices (TTFMZ1) in Europe after Russia’s Gazpromfailedtobookadditional pipelinecapacityvia Poland and Ukrainefor December also supported the market, as it raised the prospect of consumers switchingfrompunitivelyexpensive gastooil-based fuels. Apart from the risk of US action, potentially triggering akneejerkdownward reaction, the market will also be looking out for IEA’s monthly Oil Market Report on Tuesday and EIA’s weekly stock report on Wednesday. 

Metals: Speculators rushed into gold futures as real yields dropped and the dollar softened ahead of last Wednesday's white hot CPI print. In other words, the 48% jump in the net long to a 10-month high at 146k lots occurred before the price broke key resistance at $1835 last Wednesday. The subsequent rally to the current level around $1870 has undoubtedly resulted in more length being added, and with the dollar still strengthening and yields showing signs of rising, the metal needs to break higher soon in order to avoid selling from recently established longs. Despite rallying by 3.5% during the week, silver buying was muted with the net long only rising by 15% to reach a two-week high at 27.5k lots.

Despite trading up on the week, rangebound copper saw its net length being cut by 31% to a seven-week low at 24.3k lots, and given the strong fundamental outlook into 2022, this is an under-owned metal which in our view is only waiting for the technical outlook to improve.

Agriculture: The strong buying seen across the grains sector during the past few weeks reversed with selling of soybeans the main driver. The soybean complex was sold ahead of last weeks WASDE report which in the end ended up supporting after the US Department of Agriculture lowered its production estimate. Overall the total grain and soybean long was cut by 8% with only minor changes seen in wheat and corn. The softs sector was mixed with coffee length being reduced by 7% before the latest price jump to a nine-year high. The biggest reduction hit cocoa where  20k lots of selling reversed the position back to a net short. 

Coffee update from today's Market Quick Take
Arabica coffee (KCH2) reached a nine-year high on Monday at $2.2825 per pound with the supply outlook looking increasingly tight. Following an annus horribilis in Brazil where frost and drought dealt a blow, not only to the latest crop but also potentially the 2022 the on-season, and normally larger crop, the market in addition must deal with lack of shipments, surging fertilizer prices, too much rain in Columbia and recently also the threat of civil war in Ethiopia, the world’s third biggest grower of the Arabica bean. The break above $2.25, the 2014 high may signal a market running towards $3, a record level that was last seen in 2011.

Forex

Speculators, wrongly as it turned out, sold dollars for a fifth week ahead of last week's CPI release. The net long against ten IMM currency futures and the Dollar index was reduced by 4% to $21.9 billion, a six-week low.

Heavy selling of GBP being offset by EUR, AUD, CHF and JPY buying. 

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

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)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
Beethovenstrasse 33
CH-8002
Zurich
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.