Head of Commodity Strategy
In forex, heightened geopolitical tensions between the US and Europe triggered a wave of dollar short covering against the EUR. Alongside heavy JPY selling after Japan’s prime minister called a snap election for 8 February—combined with additional, though more modest, selling of CHF, CAD, AUD, and NZD—these flows drove a 78% reduction in the gross dollar short across the eight IMM currency futures to USD 2.6 billion, effectively reversing the past three weeks of net dollar selling. The JPY position flipped from a small net long to the biggest net short in 14 months, potentially leaving recently established short positions vulnerable to a squeeze should USDJPY reverse lower.
In the COT reporting week to 13 January, the Bloomberg Commodity Index gained 1.7%, with strong advances across energy and metals — both precious and industrial — more than offsetting continued softness in agriculture. Market direction during the week was to a large extent dictated by heightened geopolitical risks, initially centred on Iran and later escalating following renewed tensions linked to Greenland.
Managed money accounts responded to these price tailwinds by lifting their net long across the energy sector (excluding natural gas) by 63%. Positioning changes across metals were more muted, with gold the only market to attract meaningful fresh buying, while profit-taking reduced net length in both silver and copper.
The grains sector saw a renewed bout of selling, lifting the overall net short by 53%. Positioning changes across softs and livestock were relatively limited, aside from continued selling in cocoa and fresh buying in cattle.
In energy, a 7% Iran-focused price spike triggered a notable bout of short covering alongside fresh buying from money managers across the three major crude oil futures contracts. As a result, the combined net long position almost doubled, rising by 106k contracts to 217k, the highest level in four months. Brent, the global benchmark, accounted for the bulk of the inflows, with its net long increasing by 85.5k contracts to 208.5k.
In metals, managed money length in COMEX gold rose 10% to 136.5k contracts on fresh buying, reflecting renewed demand for hard-asset exposure amid geopolitical uncertainty and concerns about traditional safe havens. In contrast, silver’s continued price surge prompted further profit-taking and risk reduction, driving a 15% cut in the net long to 15k contracts, a 22-month low. Platinum and palladium positions were little changed, while copper’s rally to a fresh record high triggered net selling for a third consecutive week, highlighting growing concerns that prices have temporarily outrun near-term fundamentals.
The most notable developments in agriculture were continued and aggressive selling in soybeans and corn, where the net short expanded rapidly. Soybeans’ return to an almost neutral position concludes a twelve-week roller-coaster, which in October and November saw the net long surge to a record on optimism around Chinese demand, only to unwind sharply as prices weakened amid persistently muted buying interest.
In cocoa, the net short increased as the annual index rebalancing — which on paper should have supported prices following cocoa’s inclusion in the BCOM — failed to provide a floor. Instead, wrong-footed longs were forced out as producer selling helped offset the mechanical buying from index funds, underscoring the market’s vulnerability after last year’s extreme rally.
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:
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.
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