COT: Crude, gas and gold in demand during week of heavy corn selling COT: Crude, gas and gold in demand during week of heavy corn selling COT: Crude, gas and gold in demand during week of heavy corn selling

COT: Crude, gas and gold in demand during week of heavy corn selling

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 Monday, July 3, one day shorter than usual due to last weeks US holiday. A week that saw bond yields, the dollar and stocks all rise while the commodity sector delivered a mixed week with speculators focusing on crude oil, natural gas and gold while slumping corn prices triggered a reversal back to a net short position

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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's 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

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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This summary highlights futures positions and changes made by hedge funds across commodities and forex during a US holiday shortened reporting week to last Monday, July 3. A puzzling week that on one hand saw bond yields, especially at the front end of the curve, rise strongly in anticipation of a hawkish FOMC continuing to raise rates, while at the same time not preventing US and global stocks from making strong gains. A positive sentiment that prevailed until last Wednesday when minutes from the latest FOMC meeting signaled a strong consensus to implement further rate increases. 

Commodity sector:

In the week to July 3, the Bloomberg Commodity Index traded close to unchanged following a mixed week that saw strong gains in crude oil and fuel products, soybeans, softs, and livestock being offset by losses elsewhere, led by natural gas, corn, wheat, and coffee. 

Selling and buying was split evenly between the 24 major futures contracts tracked in this, with the overall result being a small 4% reduction in the net long back below 1 million contracts, primarily driven by heavy selling of sugar and corn, the latter seeing a sharp reversal back to a net short position. Net selling also hurt platinum group metals and copper, as well as soybeans while buyers concentrated their interest in crude oil, natural gas, gold, cocoa and livestock.  

Crude oil and fuel products: The beginning of July and the implementation of a Saudi production cut help trigger short covering in WTI and fresh buying of Brent. Overall, the combined net long increased by 49k contracts to 280k, still within the range that has prevailed during two months of range bound trading.
Gold, silver and copper: Gold finding buyers below $1900 despite rising yields helped support a 15% increase in the net long to 99k contracts, a four-week high. Silver remained uninspiring with the net long hovering near a three-month low. Weakness across the PGM sector lifted the palladium short to a fresh record high at 7.5k while reversing the platinum position back to a net short for the first time in four months. HG copper weakness meanwhile drove fresh short selling resulting in a 56% slump in the net long to 9k contracts.
Grains: The corn position flipped back to a net short in response to better crop weather and a bigger planted acreage. It concluded a crazy five-week period that saw traders being wrongfooted and forced to chase the market in both directions. A lower acreage driven price surge in soybeans helped trigger some profit taking with the net long reduce by 10% on the week.
Softs: Continued selling of sugar cut the net long to a November low at 140k, while the cocoa long reached a fresh three-year high at 75k contracts amid reduced stockpiles leading to supply worries. Elsewhere the coffee short jumped to a five-month high while the cotton short was cut in half
In forex, it was a mixed week with selling of EUR, GBP, JPY and AUD being partly offset by demand for CHF, NZD and CAD, the latter two flipping to fresh net longs. Overall, the gross dollar short versus eight IMM futures and the Dollar index saw a small reduction to $11.5 billion.

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