COT: Record commodity long and elevated dollar short as 2021 kicked off

Ole Hansen

Head of Commodity Strategy

Summary:  This summary highlights positions and changes made by speculators such as hedge funds and CTA's across commodities, forex, bonds and stock index futures and options up until last Tuesday, January 5. A holiday shortened week that saw the rally across assets extend into the first week of 2021. Not least commodities where the Bloomberg Commodity Index jumped 4.2% while the dollar weakened.


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 below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, January 5. A holiday shortened week that saw the rally across assets extend into the first week of trading in 2021. Not least commodities where the Bloomberg Commodity Index jumped 4.2% while the dollar weakened.

However, the cut off last Tuesday, was before key events in the US where Biden after a tumultuous day in Washington was confirmed as President and the Democratic Party secured a senate majority after winning both seats in the Georgia run-off elections. Two events that turbocharged hopes of large stimulus measures thereby triggering a jump in US Treasury yields, new record highs in US stocks and a stronger dollar. In commodities, these events led to a sharp reversal in gold and silver while copper and crude oil extended their already strong gains from December.

Commodities

The broad commodity rally that saw the Bloomberg Commodity Index rise by 10% during the last quarter extended into the new year with the index gaining 4.2% during the holiday shortened week to January 5. This as inflows to value, cyclical and reflation investing strategies continued. 

Speculators responded to the continued rally by increasing an already record long commodity exposure by 3% to 2.6 million lots, representing a nominal exposure of $134 billion.

Some of the commodities that have received strong attention and demand from a tightening supply outlook in 2021 an beyond has been copper, soybeans and crude oil. Following the weakness in precious metals, these key commodities may however now be at risk after reaching overbought territory.

We are bullish commodities in 2021, but following the rapid buildup, the market may in the short-term be in need of a period of consolidation. The slump in gold and silver last that was triggered by the rise in yields and the dollar being a potential warning sign to the everything rally that we have witnessed in commodities and stocks during the past couple of months. With this in mind stay focused on the dollar and yields and the risk of further increases temporarily impacting the bullish technical outlook.

Forex

Speculators maintained an unchanged dollar short exposure during the holiday shortened reporting week to January 5. Against ten IMM currency futures and the Dollar Index, the net dollar short stayed at $32.6 billion, some $2.6 billion above last August’s record. Despite trading broadly weaker, dollar net-selling was only seen against AUD, BRL and not least JPY where the net-long increased by 6% to 50,190 lots, the highest since October 2016.

Table

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

 

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