COT: Oil bought, gold and dollar sold on continued vaccine optimism

The below summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, November 24. The reports, normally published on Friday’s by the U.S. CFTC was delayed due to last week’s Thanksgiving holiday.

During the week, the market behavior was dictated by continued vaccine optimism and the formal start of President-elect Biden’s transition, news that removed the threat of a contested transfer of power. These market-friendly developments helped lift the S&P 500 by 0.7% while the Dow Jones topped 30,000 for the first time. The dollar traded softer, ten-year U.S. bond yields ticked higher by a couple of basis points while the Bloomberg Commodity index rose by 1.1%, led by strong gains in crude oil, copper and agriculture while gold and silver both took a hit.

Commodities

Speculators increased bullish bets across 24 major commodity futures to a near three-year high in the week to November 24. The 3% increase to 2.3 million lots was primarily driven by those commodities, most noticeable crude oil, benefitting from a vaccine driving recovery in growth and demand. Gold, the safe haven metal, saw another slump while copper and platinum saw increased buying interest. The agriculture sector was mixed with  another week of profit taking in soybeans and sugar being more than offset by strong buying of corn, coffee and not least cocoa.

Forex

The raised level of market risk appetite driven by vaccine optimism and reduced risk of a contested U.S. presidential election helped softening the dollar during the week to November 24. The weakness, most prominent against CAD, AUD, NZD and MXN, helped drive a 12% increase in the overall dollar short against ten IMM currency futures and the Dollar Index to $25.3 billion. Still well below the -$34.9 billion peak back in August.

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