COT Report: Speculators show measured reaction to trade truce in forex and commodities

Commodities:

The latest COT reporting week, as mentioned, captured the initial market response to the announced 90-day US-China trade truce, which included a temporary reduction in tariffs. This development was broadly welcomed across financial markets, especially among commodities with strong exposure to global growth and Chinese demand, spurring a rally in procyclical and growth-sensitive commodities, while safe-haven demand subsided. The Bloomberg Commodity Index rose by 1%, with gains largely concentrated in the energy sector. Conversely, precious metals saw notable weakness, with gold suffering the steepest setback.

Overall, while the trade truce provided a welcome catalyst for markets and lifted sentiment across several key sectors, hedge fund positioning suggests a wait-and-see approach. The cautious response likely reflects uncertainty over the durability of the truce and whether it marks a meaningful step toward longer-term normalization in US-China trade relations. As such, positioning changes were selective and measured, rather than a wholesale shift toward risk-on sentiment.

Crude Oil: While Brent crude, the global benchmark saw renewed speculative buying amid the broader energy rally, jumping 55% to a five-week high, the US-focused WTI contract was sold for a second week.

Gold: The metal slumped 5% on reduced safe-haven demand, but the response from hedge funds was relatively muted. Net selling was limited, perhaps reflecting the fact that gold’s net-long positioning was already at a 14-month low following persistent reductions over the previous weeks. This restrained reaction could indicate that a deeper price correction may be required to trigger additional long liquidation while at the same time raising the prospect of fresh buying once the technical outlook improves, or a fresh fundamental catalysts emerge

Silver & Platinum: Both metals, which possess significant industrial applications, avoided the magnitude of gold's decline. However, they still experienced moderate net selling, consistent with the initial easing in demand for precious metals.

Copper (HG): Comex copper saw a small amount of fresh longs being added during a week when the prices in New York fell amid a narrowing of the tariff-related premium over London Metal Exchange (LME) copper, which rose on hopes for an improved demand outlook and emerging tightness outside the US. 

Grains & Oilseeds: While soybeans rallied on hopes of revived Chinese demand, the broader grain complex remained under pressure. The combined net short across the six key grain and oilseed futures contracts reached a six-year seasonal high. This was driven primarily by aggressive corn selling, which flipped the net position back into short territory. CBOT wheat also remained under pressure, continuing a net short trend that has persisted since June 2022. In contrast, soybeans and soybean oil saw strong buying interest, with soybean oil in particular surging 6.5% on the back of renewed enthusiasm for biodiesel demand.

Sugar saw renewed speculative buying as prices stabilised and after five weeks of net selling had cut the net long by 88% to near neutral.

Cocoa gained 10% amid renewed concerns about the quality and size of the current Ivory Coast harvest, overall encouraging hedge funds to reestablish long positions.

Coffee and cotton faced renewed headwinds, with the latter seeing fresh selling following a seven week period where the net short was cut by 74%. 

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.