COT update: Commodity buying accelerates as dollar positioning steadies

Commodities

Hedge funds extended their recent commodity buying spree into a fifth consecutive week, supported by a 4.7% jump in the Bloomberg Commodity Index amid broad strength across energy, precious metals and soft commodities. Overall, the combined net long across the 24 major commodity futures tracked rose by 18% to 1.3 million contracts, a 173% increase in less than two months.

Energy attracted particularly strong buying as renewed Middle East concerns drove crude oil and refined products sharply higher. Brent jumped 12% on the week and WTI almost 10%, prompting a 76k-contract increase in the Brent net long to 241k. Natural gas also saw a sizeable reduction in bearish exposure, with the net short cut by 19k contracts to 70k.

Precious metals were mixed from a positioning perspective despite strong price gains. Gold rallied almost 7%, with the net long rising 7% to an 11-month high of 142k contracts, while silver gained close to 8% despite a small reduction in speculative length. Platinum stood out on the downside, with the net long slumping 30% to just 7.6k contracts. Together with total platinum ETF holdings remaining near a 7½-year low, this highlights a metal that remains notably underowned as speculators continue to favour gold rather than broader precious-metals exposure.

Meanwhile, despite trading broadly unchanged on the week, copper bulls boosted their net long by another 4% to 80.9k contracts, a fresh 5½-year high. Despite this, the long-to-short ratio currently stands at ‘only’ 6.4 longs for every short, well below levels seen during the December–January period when it exceeded 12. This suggests there may still be scope for additional short covering should prices resume their advance following the latest period of consolidation.

Across agriculture, a second consecutive week of grain selling was more than offset by a dramatic shift in sugar positioning, together with fresh buying of coffee and cotton. Sugar jumped 11% and, importantly, the rally finally triggered a major positioning response, with funds buying a net 137k contracts and flipping their overall position to a net long for the first time in 14 months. The shift was overwhelmingly driven by short covering, which helped propel the front-month contract towards 17 cents per pound, a level that once again provided resistance. Continued buying of cotton lifted the net long to 72.9k contracts, a 28-month high.

Despite having gained around 25% year-to-date, wheat continues to be traded with a short bias by speculators, as has been the case more or less continuously since 2022. In the latest reporting week, the net short increased by one-third to 31.4k contracts, leaving wheat as the only major grain contract with a speculative net short. This comes despite growing supply concerns as Russia and Ukraine step up attacks on each other’s export infrastructure, potentially disrupting shipments from two countries that together account for close to one-third of global wheat exports.

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.