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COT: Gold and crude longs maintained amid strong underlying support

Commodities
Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary

  • The first commodity sector correction in four weeks triggered mild selling, led by gas oil, silver and copper
  • Gold and crude length maintained amid strong underlying support
  • Aggressive dollar buying drives the gross long to an October 2022 high

Forex: 

In the forex market, broad dollar strength continued ahead of the Easter break, most notably against CHF (-1.9%), GBP (-1.2%), and NZD (-0.8%). Overall, it drove a second week of aggressive dollar buying, lifting the gross long versus eight IMM currency futures to an October 2022 high at USD 13.8 billion. The EUR net long slumped by 35% to a September 2022 low at 31k contracts, the CHF net short reached a December 2019 high at -22k, while the JPY short expanded to -129k, not far from the 2017 record high at -136k. Except the greenback, the only other currency enjoying demand was the MXN which, due to its high level of carry, saw its net long reach a fresh four-year high at 132k contracts.

2olh_cot0
Non-commercial dollar position versus eight IMM currency futures and the Dollar index

Commodities

The Bloomberg Commodity index, which tracks a basket of 24 major futures markets split between energy (30.1%), metals (34.2%) and agriculture (35.7%), traded lower for the first time in four weeks, leading to net hedge funds selling across all sectors except grains. Biggest individual reductions as per the table below was seen in gas oil, silver, copper, wheat and cocoa, while buyers concentrated their focus in soybeans, sugar and coffee.

2olh_cot1
Managed money long, short and net positions in the week to March 26.
2olh_cot2
Energy: Crude oil’s temporary correction helped attract a small amount of net selling, overall leaving the net stuck near a five-month high. The two diesel contracts saw selling as Russian supply worries faded.
2olh_cot3
Metals: The gold long held steady near a two-year high with lack of selling appetite making it relatively easy for funds to maintain an elevated position. Silver short-selling reduced the net long by 20%. Copper’s upside failure triggered a halving of the net long, led by fresh short selling
2olh_cot4
Grains: short covering extended to a third week albeit at a much reduced pace with buyers focusing solely on soybeans while short selling lifted already elevated short positions in corn and wheat
2olh_cot6
Softs: The cocoa net long was cut to a one-year low as funds continued to sell into a parabolic surge that lifted prices by 20% during the reporting period.

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.

20 Mch 2024: Attacks on Russian refineries lift risk premium and crude prices
19 Mch 2024: How to add copper exposure to your portfolio
15 Mch 2024: Commodity weekly: Green shoots seen across key sectors
13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: Investing with options - Gold optionality
6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
29 Feb 2024: Podcast: Why speculative interest is important to understand
28 Feb 2024: Oil price stuck in neutral despite underlying strength
27 Feb 2024: Resilient gold market defies lower rate cut predictions
22 Feb 2024: Copper short squeeze fades ahead of key resistance
21 Feb 2024: Gold's resilience despite recent futures and ETF selling
20 Feb 2024: WTI crude eyes resistance amid improved signals
16 Feb 2024: Commodity weekly: Grains tumble; Industrial metals eye China boost
15 Feb 2024: US rate cut delay drives gold below $2000
13 Feb 2024: Video: What is driving Cocoa's sweet price
9 Feb 2024: Commodity weekly: Refined product strength lifts crude
9 Feb 2024: Podcast: Year of the metals
7 Feb 2024: Crude oil supported by tightening fuel outlook
6 Feb 2024: Gold and silver turn defensive on reduced Fed rate-cut optimism
2 Feb 2024: Commodity weekly: Tight supply adds fuel to uranium and cocoa rally
1 Feb 2024: Commodities: January performance and ETF flows

Previous "Commitment of Traders" articles

18 Mch 2024: COT: Hedge funds buying expands from precious metals to copper and grains
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
26 Feb 2024: COT: Record corn short, cocoa surge no longer supported by speculators
19 Feb 2024: COT: US inflation surprise drives broad selling of metals
5 Feb 2024:COT: Speculators chase false crude break; grain short extends further


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