COT: Gold and silver length cut in half; Agriculture bought on weather woes

COT: Gold and silver length cut in half; Agriculture bought on weather woes

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, August 10. A week that saw speculators getting busy adjusting positions in response to an increased virus threat at a time of rising yields and dollar following the strong US jobs report for July. In commodities speculators continued to rotate out of energy, industrial and investment metals, and into the agriculture sector.


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 summary below highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, August 10. A week where hawkish comments from Clarida, the Fed vice-chair and strong jobs report saw markets starting to price in an earlier than expected unwinding of the Fed’s massive stimulus program.

These developments helped trigger a one percent increase in the Bloomberg Dollar index while ten-year inflation protected yields jumped 16 basis points just after hitting a record low. Stocks saw another growth to value rotation while commodities traded mixed with heavy selling in precious metals being partly offset by continued buying across the agriculture sector. Energy and industrial metals also suffering setbacks on demand concerns in response the continued spreading of the delta coronavirus variant.

Commodities

The Bloomberg Spot index lost 1% during the reporting week to August 10, as the continued spreading of the delta coronavirus variant in Asia and parts of the US raised concerns about demand for key commodities such as crude oil and copper. Investment metals slumped on rising yields and dollar while the agriculture sector remained to the go to sector with adverse weather across the world providing a boost to both grains and softs.

Overall, the total net long across 24 major commodity futures was cut by 4% to 2.2 million lots with selling of crude oil, gas oil, gold, silver, and copper being only partly offset by demand for sugar, soybeans, corn, and wheat

Energy: Continued crude oil weakness saw speculators cut their net length in WTI and Brent for a second week to an eight-month low. This in response to demand worries caused by the rapid spreading of the delta coronavirus variant, not least in China were a relatively small number of cases has led to renewed shutdowns and restrictions on movements. The combined long was cut by 48k lots to 566k, but just like the previous week reduction, the change was solely driven by long liquidation with no signs of appetite for naked short selling. Probably due to the belief the disruption will be transitory and that OPEC and friends, if necessary, will adjust production to support the price.

Monday morning comment: Crude oil trade lower for a third day with Brent back below $70after key oil consumer China released weaker than expected retail sales and industrial production data and following Friday’s very weak sentiment reading. These developments support IEA’s latest downgrade to demand for the months ahead as a resurgent delta coronavirus variant is impactingdemand across the world. Also, in the US there are signs shale producers are ramping up activities with the number after the number of rigs last week rose by 10 to 397, marking the biggest jump since April.

Metals: Speculators more than halved their gold and silver longs during a very troubling week for precious metals. The week covered a renewed rise in bond yields following Fed vice-chair Clarida’s hawkish comments and the strong jobs report culminating in last Monday’s flash crash. In response to these for metals adverse developments, the gold net length was cut by 52% to 51k lots while the silver length collapsed by 54% to just 12k lots, a fifteen months low.

Platinum, which during the week saw its discount to gold rise to $800 from an April low at $500 saw continued selling with the recently established net short more than doubling to a 13-month high at 9k. Rangebound copper was sold for a second week with the net long dropping 19% to 32k lots, thereby reversing half the buying seen since the June low at 19k lots.

Monday morning comment: Gold finished last week on a firmer footing after a much weaker than expected University of Michigan sentiment (see below) helped deflate some of the buildup taper angst with Treasury yields and the dollar traded lower ahead of the weekendBoth paused their retreat overnight with gold and silver drifting lower as a result. A major band of resistance has emerged between $1790 and $1815 while support needs to hold around the $1750 area. Following last Monday’s flash crash, speculators slashed their gold and silver net longs by more than 50% leaving the market exposed to fresh buying on a break higher. This week the market will be watching a speech by Fed chair Powell, as well as minutes of the Fed’s last meeting. 

Agriculture: Continued price gains across the agriculture sector helped drive another week of speculative buying in both grains and softs. Adding to the support was the grain market gearing up for an expected price supportive monthly supply and demand report from the US Department of Agriculture last Thursday. A report that turned out to justify the recent buying, not least in wheat which surged higher on weather related production reductions in the US, Canada and Russia.

The world is potentially facing a supply issue with high protein milling wheat used for human consumption in bread, and that explains why Paris Milling wheat and Kansas HRW wheat both trade higher by more than 10% this month. Overall, the net length in Chicago and Kansas wheat was increased by 10k lots to 64k, still substantially below the interest seen in corn (254k) an soybeans complex (180k)

Sugar is another highflyer due to lower supplies from frost and drought hit regions in Brazil, and news India, the world’s second largest shipper is considering diverting canes towards the production of biofuel to curb imports of increasingly expensive crude oil. The net length in raw sugar futures rose 7% to a five-year high at 265k lots. The cotton long reached a three-year high at 73k lots while the coffee long suffered a setback after the price retraced from a multi-year high above $2/lb.

Forex

Speculators increased bullish dollar bets in response to the early August strong jobs report and hawkish Clarida comments. The reporting week ended last Tuesday when several currencies was under pressure from a strong greenback, not least the euro which was challenging key support at €1.17. In response to these developments, the net dollar long against ten IMM currency futures and the Dollar index jumped one-third to a fresh 17-month peak at $4.8 billion.

Selling was broad, but mostly concentrated in euros, Japanese yen and Aussie dollar while short covering helped flip the Sterling position back to a net long.

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

 

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.