COT: Gold sold despite multiple tailwinds

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 26 found that speculators maintained strong buying interest in crude oil while selling was most noticeable in natural gas, gold and the three major crops.


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 26. A week were global stocks continued higher with some, especially in the U.S. reaching new cycle highs. Broad weakness hit the dollar, a development if continued could be supportive for commodities. 

The Bloomberg Commodity Index was flat on the week with continued gains in energy, not least crude oil, being off-set by weakness across most metals. Despite a relatively neutral price behavior, funds continued to increase bearish exposure in the grain sector. In soft commodities sugar short covering continued while the cocoa short increased just before the price jumped. 

Energy: Strong buying of crude oil continued with the combined net-long in WTI (+14.3k) and Brent (+14.7k) reaching 536k lots, a four months high. The WTI long reached 363k lots, the highest since September 2018 while Brent, the recent laggard, reached 173k lots, well below the January peak at 429k lots.

Metals: The week to May 26 was a period where most metals paused with gold and silver both falling by 1.7% while copper was flat on the week. Gold's lack of hedge fund engagement continued with the net-long seeing another reduction of 14% to 24k lots, the lowest bet on rising prices in almost 12 months. An exodus from CME gold futures following the March dislocation to spot may have played its part with funds instead moving some of their long term exposure to exchange-traded funds. Total holdings in bullion backed ETFs broke above 100 million ounces for the first time last week. 

Silver's strong rally following the March collapse paused but the established momentum helped increase the net-long by 26% to 27k lots, still 42k lots or 60% below what funds held before the mentioned collapse. Silver's recent outperformance of gold may slow after the gold-silver ratio reached a technical target at 95 (ounces of silver to one ounce of gold).

The HG copper short was almost cut in half with funds not yet benefiting from the recovery seen in this important industrial metal. Today the price in early trading moved higher again to almost challenge $2.50/lb, a level that provided support from 2017 before becoming resistance following the March collapse below. 

Agriculture: Broad selling of the three major grains continued, not least corn where the net-short reached 276k lots,  the most bearish position held this time of year in at least ten years. A slump in ethanol demand (now recovering as oil rally), a rapid planting progress and doubts about export strength, have kept corn anchored close to the psychological key support level at $3/bu. 

Sugar short-covering continued as bio-fuel related demand recovered. The fund long in coffee was cut by 37% as the technical outlook deteriorated further following the break back below $1/lb.

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.
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.