COT: Silver bought, gold sold ahead of breakout

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 May 12. During a relative quiet week across other asset classes the Bloomberg Commodity Index fell by 1.2% with losses in energy and soft commodities being only partly offset by gains in metals, grains and livestock.


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.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, May 12. Following a couple of weeks of strong energy-led gains the Bloomberg Commodity Index traded lower by 1.2% in the week to May 12. In response to this speculators cut bullish commodity bets by 9% to 567k lots. Most of the selling was seen in natural gas, Brent crude oil, corn and gold while buyers concentrated their efforts in WTI crude oil, soybeans and live cattle.

Energy: The divergence in speculative interest between WTI and Brent crude oil continued in the week to May 12. The 5% rally in CLM0 attracted another 25k lots of fresh longs with the net rising to 325k lots, the highest since September 2018. Brent crude oil (LCON0) meanwhile traded lower by 3% resulting in the net long being cut by 21k lots to 156k lots. The combined net-long reached a three months high at 481k lots with WTI contributing two-third of the nearly 300k lots funds have added during the past six weeks.

As mentioned in my latest ‘Commodity Weekly’, the short-lived collapse to a negative WTI price last month probably saved the market. It helped accelerate dramatic cuts in global production, estimated by the IEA to hit 12 million barrels/day this month. With demand beginning to recover and US producers having made substantial cuts, WTI crude oil has so far been the go to contract for bullish speculators. However, driving the price to high before fundamentals can support a sustained recovery carries the risk of US shale oil producers turning the taps back on to soon.

Natural gas’ failure to sustain a rally above $2/therm helped trigger a 19% correction and a 30% reduction in the net long to 112k lots. The price had rallied strongly from the March low on the outlook for lower production from associated oil production. Milder weather combined with continued lockdowns leading to lower demand and reduced export demand for LNG all helped drive the price lower.

Metals: Gold longs were cut to a fresh 11-month low at 161k lots as the price continued to struggle to break it’s $1700/oz shackle. Silver buyers meanwhile returned to increase the net-long by 35% ahead of the Thursday spike back above $16/oz. The white metal has now retraced more than 61.8% of the February to March collapse thereby attracting renewed demand from speculators who in recent weeks had cut net-longs by 85% from the February peak.

HG Copper traders were the least bearish since January after cutting the net-short by 18% to 13k lots, Further upside however remains doubtful with economic data beginning to show the horrendous damage done to the global economy from many weeks of inactivity. Something that was highlighted by the data showing that the change in position was driven by short-covering and not fresh longs.

Agriculture: Another year of plenty supplies across the three major crops are being projected by the U.S. Department of Agriculture in their latest outlook from May 12. Only a deteriorating weather outlook over the coming months or a pickup in U.S. export sales - unlikely given the strong dollar - can prevent stocks building following another bumper harvest in the U.S. and around the world. Overall the grains sector was net-sold with buying of soybeans (+24k) being off-set by wheat (-0.9k) and not least corn where 24k lots of selling lifted the net-short to a one-year high at 214k lots. 

All four soft commodities were net bought despite cotton being the only contract being supported by a higher price. Buying of sugar and coffee occurred despite the headwind from a free falling Brazilian real.

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.
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