COT report: Modest gold and silver longs fuel breakout momentum

Commodities

The Bloomberg Commodity Index (BCOM) rose 1.8% during the reporting week to last Tuesday, 26 August, with all sectors rising, most notable precious metals and agriculture. On an individual level, the standout performers were coffee, cattle, corn, crude together with gold and silver. From a speculative positioning perspective, short covering continued across the grains sector, a first-ever net short position in WTI crude (CME and ICE combined) was maintained while net longs in gold and silver were relatively small ahead of the end of week breakout that has driven silver back above USD 40 for the first time in 14 years while gold is once again challenging the April record high at USD 3,500.

Energy:

As mentioned, the combined WTI position stay in negative territory for a third week, with traders instead adding length to Brent for the first time in four weeks. Overall, the total net long in Brent and WTI remain subdued at 193.2k contracts (Brent: 206.5k and WTI (-13.4k) amid worries about an emerging supply glut weighing on prices into Q4 and beyond.

Metals:

Gold—and especially silver—extended Friday’s strong gains, supported by sticky US inflation, weakening consumer sentiment, incoming rate cuts lowering funding costs, and concerns over Fed independence. Gold trades near the April peak at XAU 3,500, while silver has reclaimed XAG 40 for the first time in 14 years. In relative terms, a break below 85.75 in the XAUXAG ratio—the July low—may signal further silver outperformance.

The so-called “paper” position in gold and silver ahead of the latest surge showed rising ETF demand on prospects of lower funding costs, while momentum-driven speculators in the futures market held relatively modest net longs—leaving room to add on the technical breakout now unfolding.

Futures (Managed Money & Other Reportables):
• Gold: 21m oz, below the 1-yr avg. of 24.5m
• Silver: 220m oz, just above the 1-yr avg. of 208m

Exchange-traded funds (ETFs):
• Gold: 93.2m oz, a 26-month high
• Silver: 806m oz, a three-year high

Agriculture:

Short-covering in the under-owned grains sector extended into a third week, led by soybeans and corn. During this time, managed money’s net short across six major futures has been cut 45% to 251k contracts. With harvest pressure and expectations of a bumper global crop largely priced in, short positions could be challenged should the technical picture turn more favorably.

Arabica coffee jumped 31% last month supported by production concerns in Brazil and US import tariffs impacting stock levels in the US where the Arabica coffee contract is listed and traded. Speculators lifted their net long by 17% to 28.3k contracts, well below the April record peak near 72k contracts.

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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's 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

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.