COT Report: speculators bought crude and gold; euro shorts reach 4-year peak

COT Report: speculators bought crude and gold; euro shorts reach 4-year peak

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Key points:

  • The commodities sector has kicked off the week on a firm footing, led by gains in energy and industrial metals, as markets responded to developments in Syria, a strategic pivot in China, and incoming rate cuts in the next two weeks.
  • Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week to last Tuesday, 3 December 2024.
  • Speculators held the biggest IMM euro short since March 2020. A three-week buying spree flipped JPY back to a net long position.
  • In commodities, speculative demand for Brent, gold, soybeans, sugar, and livestock was offset by selling of natural gas, diesel, wheat, coffee, and cocoa.

Broad Monday gains with focus on Syria regime collapse and China stimulus 

The commodities sector kicked off the week on a firm footing, driven by gains across the board — particularly in energy and industrial metals — as markets responded to a flurry of impactful developments.

Foremost among these, the sudden collapse of the regime in Syria has ratcheted up geopolitical tension, reviving anxieties about regional stability. The specter of a political vacuum in Syria evokes painful memories of post-revolution Libya and Iraq, where the ousting of entrenched leaders plunged both nations into deeper chaos. The market’s knee-jerk reaction reflects a blend of caution and unease, with fears that a similar fate for Syria could impact global security.

However, the most important news supporting the markets came from China. The 24-member Politburo, helmed by President Xi Jinping, announced a strategic pivot toward a "moderately loose" monetary policy for 2025 — the first such shift since 2011. This recalibration signals a renewed commitment to bolstering consumer confidence while shoring up the beleaguered property and stock markets. Despite a slew of stimulus packages rolled out since September, China’s recovery has been met with skepticism, especially as looming U.S. tariffs threaten to dent export-driven demand. For now, traders’ optimism for industrial metals hinges less on rhetoric and more on tangible policy actions. With this in mind, all eyes are on the Central Economic Work Conference kicking off Wednesday, where concrete measures could ignite fresh momentum.

Adding another layer of anticipation, the coming fortnight will see nine major central banks convene to chart the course for monetary policy. Markets are bracing for rate cuts from at least four of these institutions — with the Federal Reserve at the forefront. The Bank of Canada, European Central Bank, and Swiss National Bank are also widely expected to ease policy.


Forex:

In forex, speculators responded to a softer USD during the reporting week by making a small reduction in overall dollar long versus eight IMM currency futures. The 2% reduction to USD 22.5 billion, however, was very uneven, as continued selling of EUR, CHF, GBP, CAD, and AUD was more than offset by demand for JPY, where 25k contracts of net buying flipped the net position back to a small long. Other developments of note were an increase in the EUR net short to 57.5k contracts, or USD 7.6 billion equivalent, the biggest since March 2020.

9olh_cot1
Non-commercial IMM futures positions versus the dollar in week to 3 December

Commodities:

In the latest reporting week, the Bloomberg Commodity Index lost nearly one percent, primarily led by losses among a few key commodities—from natural gas and diesel to wheat—as well as some softs contracts, led by profit-taking in cocoa and coffee before a renewed tight-supply-led rally resumed past the reporting week. Pulling in the opposite direction, we saw the softer dollar providing some fresh support for precious as well as industrial metals, while crude oil received a bid in anticipation of another OPEC+ delay in raising production.

The response to these price developments from managed money accounts was relatively muted, with the overall exposure across the 27 major futures contracts tracked being unchanged on the week. On an individual level, the strongest demand was seen in Brent, gold, soybeans, sugar, and all three livestock contracts, while selling, as mentioned, was most notable in gas oil (diesel), natural gas, wheat, and coffee.

9olh_cot2
Managed money commodities long, short and net positions, as well as changes in the week to 3 December
9olh_cot3
Energy: Crude oil saw net buying of WTI and not least Brent where the short-only position was cut for a third week to a May low. Gas oil and natural gas longs were both cut by more than 30%
9olh_cot4
Metals: A small increase in the gold long on short covering, with other metals also seeing a small amount of net buying
9olh_cot5
Grains: A fourth week of wheat selling lifted the net short to a four-month high. Together with selling of corn and soy oil, the total net short rose to -156k, well below a five-year average long at 259k
9olh_cot6
In softs, the small correction in cocoa and coffee (before surging anew) helped drive a small amount of profit taking. In livestock, the live cattle long reached a May 2019 high, the lean hogs long an all time high

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.


Recent commodity articles:

22 Nov 2024: Commodity weekly: Strongest performance since April
19 Nov 2024: 
Gold and silver rise on Russia-US tensions
18 Nov 2024: 
COT: Limited dollar demand despite strength; Acclerated metals selling 
11 Nov 2024: 
COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: 
Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: 
Podcast: US election and the market reactions, including commodities
6 Nov 2024: 
Trump and Republican victories spark commodity decline
4 Nov 2024: 
COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: 
Commodity weekly: Some weakness seen ahead of critical week
31 Oct 2024: 
Crude prices seek stability ahead of key support and US elections
30 Oct 2024: 
Will the US election result spark a gold correction?
29 Oct 2024: 
Podcast: Electrification's surge impact on commodities and equities
28 Oct 2024: 
COT: Crude length cut; silver and platinum see strong demand
25 Oct 2024: 
Commodity weekly: Market jitters on the rise ahead of U.S. elections
23 Oct 2024: 
Crude prices stalled by two-sided market risks
22 Oct 2024: 
Gold and silver's remarkable run in four charts
22 Oct 2024: 
Podcast: The Trump trade enters the metal market
21 Oct 2024: 
COT: Dollar shorts squeezed; Shift in commodity exposure from energy to metals
18 Oct 2024: 
Commodity weekly: Gold's record-breaking run continues
17 Oct 2024: 
Copper prices decline amid doubts about China stimulus impact
16 Oct 2024: 
How high can gold and silver rally?
8 Oct 2024: 
Podcast: Navigating market shifts: Fed rate cuts, commodities and rising food prices
8 Oct 2024: 
Video: These commodities might be impacted by the US election
7 Oct 2024: 
Crude oil surge caps strong four-week rally for commodities
7 Oct 2024: 
COT: Broad buying momentum persists, led by Brent, copper and grains
2 Oct 2024: 
Q3 2024 Commodity Outlook: Gold and silver continue to shine bright


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