COT: Hawkish FOMC hurts gold longs and USD shorts

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, June 22, a week that dealt with the aftermath of the hawkish FOMC meeting on June 16. The stronger dollar triggered a one-third reduction in the speculative dollar short while losses in metals and grains drove down the Bloomberg Commodity index by 2.2%, thereby triggering the biggest one-week reduction in bullish bets in four weeks


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, forex and financials up until last Tuesday, June 22. A week that dealt with the aftermath of the hawkish FOMC meeting on June 16. While most asset classes initially sold off, some including bonds and stocks had recovered strongly by the end of the reporting week last Tuesday. The stronger dollar meanwhile triggered a 31% reduction in the speculative dollar short while losses in metals and grains drove down the Bloomberg Commodity index by 2.2%, thereby triggering the biggest one-week reduction in bullish bets in four weeks.

Commodities

The commodity sector led by metals and grains took a tumble following the June 16 FOMC after the hawkish signal helped send the dollar higher and the inflation expectations lower. The total net long across 24 major commodity futures tracked in this was reduced by 6% to 2.24 million lots, a four week low. Biggest reductions seen in gold, silver and platinum as well as soybeans and sugar, while crude oil longs were left untouched amid strong fundamental tailwinds. 

Energy: Crude oil, products and natural gas all traded higher during the reporting week, thereby avoiding the post-FOMC weakness that was seen across metals and agriculture. Strong fundamentals driven  by OPEC+ keeping supplies tight as global demand recovers helped cushion crude oil with speculators only cutting their net long positions by 1% in both WTI and Brent.  

LatestCrude oil trades steady near the highest since 2018 with market participants expecting OPEC+ will keep supplies tight enough to support current levels. The group meets on Thursday to decide production levels from August and beyond, and the market is currently looking for an increase of 500,000 barrels per day which is less than the increases seen during the past three months. With virus uncertainties due to the highly contagious delta strain and questions about an Iran nuclear deal hanging over the market, the group may opt for caution, hence the current price strength. Brent support at $74.5 while it would need to break below $72 before signaling risk of a deeper correction.

Metals: Speculators made deep cuts to their gold, silver and platinum longs after the FOMC meeting helped boost the dollar while lowering inflation expectations. The accelerated selling that followed the meeting helped drive down gold longs by 33% to 76k lots, a seven-week low and silver by 36% to 29k lots while the 81% reduction in platinum longs returned the position to neutral. Focusing on the latter, the relative strength seen in platinum since the initial sell-off can to a certain extent be explained by speculators rebuilding their long positions. 

Latest: Gold continues to consolidate below $1800 with a break above $1820 probably needed to attract short-covering and fresh buying interest, especially after many speculators threw in the towel following the hawkish FOMC meeting on June 16. Before then the market remains focused on the dollar and its recent price adverse strength and whether inflation is indeed transitory, as signaled by central banks, or becoming more entrenched. 

Agriculture: Speculators cut bullish grain and soybean bets to a nine-month low with the biggest reductions seen in soybean and bean oil. Bucking the trend we saw the wheat position flipping back to a small net long. 

Forex

In forex, the broad dollar buying that followed the hawkish FOMC meeting on June 16 helped trigger a 31% reduction in speculative dollar short against ten IMM currency futures and the Dollar Index. The biggest flows that triggered the $6 billion reduction to a seven-week low at $13.1 billion was primarily driven by sales of euro (-29k lots), sterling (14k) and yen (7k). Despite falling by 2.2% the Swiss franc was bought to the tune of 4k lots.

Financials

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

 

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