Head of Commodity Strategy
Summary: Hedge funds maintained an almost unchanged exposure to 24 major commodity futures and options in the week to June 11. However, some major switches continued between the sectors.
To download your copy of the Commitment of Traders: Commodity report for the week ending June 11, click here
From a technical perspective the dwindling long and increased short positions have left the market exposed to an upside move should the situation in the Middle East deteriorate further. On the other hand the failure to break higher last week amid the evidence of Iranian involvement could indicate that further losses can be seen should the situation stabilise. In Brent the levels in our opinion to look out are currently $59.50/b to the downside and $64.50/b to the upside.
The biggest short-term risks to gold bulls are the potential for the US Federal Open Market Committee proving unwilling to meet the market’s expectations for aggressive rate cuts leading to a stronger dollar and/or a surprise trade deal announcement when Trump and Xi meet at the G20 in Osaka June 28-29. The silver net-short meanwhile was cut by 57% to 8.5k lots with the market struggling to get exited about the white metal despite trading at the lowest level to gold in 26 years.
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.