COT: Commodities in demand as dollar and real yields drop

COT: Commodities in demand as dollar and real yields drop

Ole Hansen

Head of Commodity Strategy

Summary:  The Commitments of Traders report covering positions held and changes made by money managers in the week to August 4. Appetite for risk during this period remained strong with dollar weakness and rising negative real yields feeding a rise in prices across global asset markets, not least in commodities where gains were led by natural gas, silver and softs. Buying however - as opposed to recent weeks - were not broad based with losses seen in platinum, copper and grains.


Saxo Bank publishes two 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.

This summary highlights futures positions and changes made by speculators such as hedge funds and CTA’s across 24 major commodity futures up until last Tuesday, August 4. Appetite for risk during this period remained strong with dollar weakness and rising negative real yields feeding a rise in prices across global asset markets. The S&P 500 Index added 2.7% to reach a fresh cycle high while the dollar weakened further against a basket of major currencies. The yield on U.S. ten-year notes dropped 7 bp to 0.50%, thereby supporting a further fall in real yields to a fresh record low at -1.06%.

The Bloomberg Commodity Index rose 3% in the week to August 4 to move above its 200-day moving average while retracing half the January to March sell-off. Gains were led by natural gas (+17.7%), silver (+7.1%), cocoa (7.3%) and coffee (9.6%). In response to these developments, money managers increased bullish bets across the 24 major futures contracts by 10% to a pre-pandemic high at 1.3 million lots.  Buying however - as opposed to recent weeks - were not broad based with losses being concentrated in  platinum group metals (PGM), copper and grains.

Energy: Brent and WTI crude oil managed to attract a small amount of net buying. The combined net long rose by 3.4k lots to 542k lots. This after prices rose to near the top of the recently established range. However, the markets inability in recent weeks to respond positively to rising equity markets and the weaker dollar helped drive an increase in the Brent gross short to 83.8k lots, a 14 week high. 

Speculators increase bullish natural gas bets on four Henry Hub deliverable futures and swap contracts by one-third to 262k lots, a seasonal high going back at least ten years. Hotter than normal weather helping to curb the seasonal stockpile build send natural gas prices soaring during the week by almost 18% to $2/therm.

Energy

Metals: For the second week in a row managed money accounts failed to join the exuberance being exhibited by record flows into ETF's in response to surging gold and silver prices. Both metals witnessed a second week of net-selling, primarily driving by fresh short positions. Most noticeable in silver where funds in a two week period to last Tuesday cut bullish bets by one-third while the metal surged by more than 22%.

The short-term outlook now increasingly points to consolidation with the real rates reversal on Friday sending a warning that no markets – apart from a few U.S. technology stocks, apparently – can continue in a straight line. Gold investors will be watching the dollar, real yields and US-China developments for inspiration, but after adding 250 dollars to the price in just three weeks, the market increasingly needs to consolidate and validate those gains. 

Silver is potentially the most challenged with an overcrowded long in SLV:arcx ETF by equity focused newcomers, many of whom know little about how the metal behaves (strong rallies often followed by deep corrections). Platinum’s failure to join the rally and the gold-silver ratio returning to its long term average close to 70 also adding some short-term headwinds.

In addition, it’s worth mentioning fading support from industrial metals. Not least copper which slumped on Friday after Chile trimmed the 2021 price outlook due to a widening surplus. Ahead of the weakness, speculators had already started to trim their biggest long position in two years. This in response to coppers recent failure to challenge $3/lb and reports that the COVID-19 related impact on supply from South America was not as bad as the market initially had feared.

Precious and industrial metals

Agriculture: The December corn futures return to a lifetime contract low on higher yield forecast and no serious weather threats, helped trigger a 21% increase in the net short to 172,820 lots, still well above the 297,000 lots short seen just two months ago. The bullish conviction held by soybeans speculators continued to be challenged after the price, despite Chinese buying, dropped to a one month low. This after an increase in soybean crop rating raised prospects for another bumper harvest.

Arabica coffee speculators reversed back to a net-long position of 16,418 lots. This after supply concerns in Vietnam, the world’s top producer of Robusta, lifted the price of both varieties. December Arabica coffee last Wednesday surged to resistance at $1.29/lb, the March high and 61.8% retracement of the December to June sell-off. A weaker Brazilian Real however helped trigger profit taking among recently established longs with the price finishing a very volatile week on Friday at $1.1790/lb.

Key U.S. crop futures
Soft commodities
What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

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 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • 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

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

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. Android is a trademark of Google Inc.

©   since 1992