Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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COT Report: Hedge funds return to gold; elevated grains short ahead of key season
Ole Hansen
Head of Commodity Strategy
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Key points:
- Our weekly commitment of traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week ending Tuesday, 20 May 2025.
- Speculators bought USD in a delayed reaction to the short-lived bounceback that followed the recent 90-day trade truce announcement.
- In commodities, hedge funds responded with limited enthusiasm—partly due to the current lack of clear trends across several major commodities, many of which have experienced volatile but rangebound trading, and partly due to ongoing tariff flip-flopping.
- While gold saw buyers return following weeks of net selling, surging platinum forced speculators to flip positions back to a net long.
- The grains net short reached a nine-month high—and the highest seasonal level since 2019—just ahead of the important and often volatile growing season.
Forex:
The latest reporting week to 20 May covered an extended risk-on period across markets following the US-China decision to lower tariffs for 90 days. However, while these developments saw renewed and broad US dollar weakness, the focus among speculators—wrongly as it turned out—pointed in the opposite direction, with naked short bets rising across all the eight IMM forex futures covered in this update, overall leading to a 27% reduction in the gross US dollar short to USD 12.4 billion. The bulk of selling against the US dollar was led by CAD (–21.7k or USD 1.6 billion equivalent) and euros (–10.3k or USD 1.5 billion equivalent), followed by AUD and JPY. In the days that followed the reporting period, the greenback saw fresh weakness amid fiscal debt concerns and renewed tariff focus after Trump vented his anger against the EU and Apple, culminating in early Monday trading when the Bloomberg Dollar Index hit a December 2023 low.
Commodities:
The latest COT reporting week to 20 May captured the aftermath of the announced 90-day US–China trade truce, which included a temporary reduction in tariffs. While the news supported additional gains across global stock markets and renewed USD weakness, the commodities sector traded in a very mixed fashion—resulting in a 1% drop in the Bloomberg Commodities Index. This was driven by weakness across most sectors, except precious metals and grains.
The managed money group of traders, tracked in this update, responded with limited enthusiasm. This was partly due to the current lack of clear trends across several major commodities, many of which have experienced volatile but rangebound trading—conditions that tend to reduce appetite for large-scale, one-directional bets. One of the few exceptions was the grains sector, where traders held the biggest net short position across soybeans, corn, and wheat in nine months—and the highest for this time of year in six years—just ahead of the important growing season, during which weather developments often have a significant impact on market performance.
In energy, a rangebound crude oil market saw net selling of WTI offset by demand for Brent, keeping the total net long near a six-week high at 245k contracts. Despite trading lower on the week, demand for the NY diesel contract jumped, resulting in the first—albeit small—net long in two months.
Hedge funds turned net buyers of gold for the first time in ten weeks, during which the net long had slumped to a 15-month low at 111k contracts—a 52% reduction since January. Renewed demand was supported by signs that the month-long correction had run its course, after prices rallied back above USD 3,200 per ounce.
Meanwhile, a small amount of net silver buying paled in comparison with platinum, which—together with palladium—surged after finally breaking through key levels of resistance. The platinum position flipped back to a 6.2k long, while the net short in palladium was reduced by 27%. Overall, a sustained rally will force additional demand from wrong-footed short sellers, and those rebuilding longs. Note, in the past five years, when platinum traded mostly sideways, several periods of demand saw the platinum net long peak between 20k and 25k contracts.
Across the agriculture sector, the main focus was once again on the grains segment, which—except for wheat—saw broad net selling from funds during a week where the Bloomberg Grains Index overall showed a 1.6% gain. This lifted the net short across the three major crop futures to 330k contracts—a nine-month high, and the highest for this time of year in six years. Managed money speculators are pricing in almost no weather or logistics risk premium as we enter the critical US summer growing season.
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.
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