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COT: Gold and WTI see increased demand as Dollar longs plummet

Commodities
Ole Hansen

Head of Commodity Strategy

Key points:

  • Dollar long sees 40% reduction in past four weeks as bulls continue their retreat
  • A strong and broad commodities rally fails to attract fresh buying as traders adopt a will-it-hold approach
  • Top-performing natural gas, silver, and coffee saw limited fund interest
  • In demand were gold, WTI, gas oil, and soybeans, with net selling seen in Brent, corn, sugar, and cotton 

Forex

Relative large flows went through some of the major IMM currency pairs during a week that saw the broad-based Bloomberg Dollar index decline by 0.4%. Overall, the changes left the gross dollar long down for a fourth week to USD 18.8 billion, a 40% reduction since reaching a five-year high on 23 April. Traders bought 24,320 euros contract (USD 3.3 billion equivalent), 21,128 sterling contracts (USD 1.7 billion equivalent), and 20,938 Aussie contracts (USD 1.4 billion equivalent). Short selling of yen resumed with traders adding 18,185 contracts (USD 1.5 billion equivalent), while the CAD short reached a seven-year high of 90,824 contracts.

Non-commercial IMM futures positions versus the dollar in week to May 21

COT on Commodities

The latest Commitment of Traders (COT) report covered a week to 21 May when the Bloomberg Commodities Total Return Index rallied close to 4%, reaching a December 2022 high. All sectors showed gains led by the precious and industrial metal sectors, both rallying strongly with gold and copper reaching fresh record highs, while silver jumped to an 11-year high above USD 30 per ounce. Elsewhere, the energy sector was underpinned by a 14% jump in natural gas prices, while the softs sector received a boost from an 8% rally in both coffee futures contracts. Grains traded mixed, and despite recent strong gains, the sector nevertheless managed a 1% gain on the week.

Managed money accounts responded cautiously to the above-mentioned strong gains, with buying being relatively selective and mostly focusing on metals, especially gold. Natural gas, silver, and coffee, the three top performers, only saw a limited amount of fresh interest, potentially a sign traders following recent setbacks seek confirmation that these rallies will stick this time. On an individual level, net buying was concentrated in WTI crude, gas oil, gold, soybeans, while selling was seen in Brent crude, corn, sugar, and cotton.

Managed money long, short and net positions in the week to May 21. A mixed week with demand for WTI, Gasoil, metals and soybeans being offset by selling of Brent, corn, sugar and cotton
Energy: another mixed week that saw continued selling of Brent being partly offset by a second week of WTI buying. Overall, the combined crude long at 318.5k contracts was the weakest since Janaury 19. The product futures saw fresh demand led by gas oil while it was another solid week for natural gas only resulted in a small increase in the net long
Metals: gold's rally to a fresh record supported a 12% increase in the net long to a +4 year high at 194k while silver's 12% surge above $30 interestingly triggered fresh short selling leaving the net down 4k to 37.7k. The copper squeeze to $5.2 supported a 4% increase in the net long to a three-year high at 75.3k
Grains: corn sellers returned to increase the net short by 70% to 121.2k, while all the other five CME contracts saw net buying led by soy oil. The wheat short was cut to a 19-month low at -25.5k. Overall, the net short held in the three major crops at 172.2k is on level with last year, although the journey to get there has been very different
Softs: having just gone through a painful long liquidation phase, coffee's 8% rally triggered a surprisingly weak buying response from hedge funds. The sugar short doubled to a four-year high at -38.4k while the cotton short reached a 14-month high at -23.4k.

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:

24 May 2024: Commodity weekly: agriculture surges, metals fall on fading rate cut hopes
23 May 2024: Podcast: 2024 is heavy metals
22 May 2024: Crude oil struggles near two-month low
17 May 2024: Commodity weekly: Metals lead broad gains 
16 May 2024: Gold and silver rally as soft US data fuels market optimism
15 May 2024: Copper soars to record high, platinum breaks out
14 May 2024: COT: Crude long slump; grain purchases surge
8 May 2024: Fund selling exacerbates softening crude outlook
8 May 2024: Grains see bumpy start to 2024 crop year
6 May 2024: COT: Commodities correction spurs muted selling response
3 May 2024: Commodity weekly: Grains boost, correction in softs and energy
2 May 2024: Copper's momentum-fueled rally halts amid weakening fundamentals
29 April 2024: COT: Gold bulls stand firm despite recent correction
26 April 2024: Commodity weekly: Sticky inflation and adverse weather focus
23 April 2024: What drives the gold and silver correction ?
22 April 2024: COT: Declining momentum may signal shift toward consolidation
19 April 2024: Commodity weekly focus on copper, gold, crude and diesel
17 April 2024: Copper rally extends to near two year high
16 April 2024: Crude oil's risk premium ebbs and flows
15 April 2024:COT: Hedge funds propel multiple commodities positions beyond one-year highs
12 April 2024: Gold and silver surge at odds with other market developments
10 April 2024: Record breaking gold highlights silver and platinum's potential
8 April 2024:COT: Speculative interest in metals and energy gain momentum
5 April 2024: Commodity market sees broad gains, enjoying best week in nine months 
4 April 2024: What's next as gold reaches USD 2,300
3 April 2024: Q2 Outlook: Is the correction over?
3 April 2024: Cocoa: A 50% farmgate price boost a step in the right direction
2 Apr 2024:COT: Gold and crude longs maintained amid strong underlying support

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