US corn and soybean futures meanwhile trade close to multi-year highs following the recent release of the Prospective Planting report which turned out to be a shocker after pinning the allocated acreage for both crops at lower-than-expected levels. Wheat meanwhile tries to recover from its recent 14% slump supported by dry weather across several spring wheat growing regions. Corn, however, is likely to attract most of the short-term attention as strong export demand continues to drive down domestic inventories, and prices up to an eight-year high.
While soybeans and wheat both saw long liquidation from speculators in recent weeks, the corn long has reached a ten-year high at 396k lots. Overall, the net long across six soy and grains, currently at 684k contracts, saw the biggest one-week reduction since last May recently, and corn now accounts for a whopping 58% of the total net length.
Metals: Investors’ confidence in precious metals received a knock during the first quarter with gold and silver being two of the worst performing commodities. Gold lost almost 10% while silver managed slightly better given its link to better-performing industrial metals. However, what became clear was the metals’ inability to find a defense against rising bond yields and a stronger dollar. Being the most interest rate and dollar sensitive of all commodities, the weakness was perhaps not that surprising as the dollar rose and bond yields spiked higher amid a stronger-than-expected recovery in global and especially U.S. growth.
Having slumped almost 20% from the August peak, gold has during the past month twice managed to find support in a critically important area below $1680, and during the past week the yellow metal, supported by a dovish US Federal Reserve, managed to recover to a five-week high and almost challenge the equally important area of resistance around $1765. Although, in his comments Jerome Powell, the Fed chair, also played down the risk that inflation could get out of control, gold may suffer further losses if the market accepts his view and Treasury yields continue to rise on raised growth instead of higher inflation prospects.
However, considering that most of the so-called hot or short-term money has already left the building, we currently view the risk of a major move being skewed to the upside. Through the data we see how under owned the market currently is. Open interest in COMEX gold futures is down 25% from their July 2020 peak, while the speculative long held by money managers has shrunk by 82% from its peak a year ago. Finally, total holdings in exchange-traded funds have seen almost continued reductions since January with the total down 10% from the record 3459 tons last October.
Should gold manage to break higher, the biggest winner looks set to be silver which currently trades relatively cheap to gold with the XAUXAG ratio having risen to a 2-1/2-month high close to 70 (ounces of silver to one ounce of gold) from a recent low at 64.