COT: Hedge funds zoom in on crude, copper, and silver

COT: Hedge funds zoom in on crude, copper, and silver

Ole Hansen

Head of Commodity Strategy

Summary

  • Notable hedge funds buying of crude, copper and silver left all three vulnerable to end of week dollar strength
  • Gold buying paused ahead of FOMC with attention instead turning to silver
  • Grain buying extended to a second week; funds sold into continued cocoa surge
  • A seven-fold increase in the dollar long against seven IMM forex futures

Forex: 

In the forex market, broad dollar strength continued ahead of Wednesday’s FOMC meeting resulting in a seven-fold increase in the gross dollar long against eight IMM forex futures to USD 7.9 billion. Except the Mexican peso which saw its net long jump to a four-year high supported by a rising carry, the bulk of the dollar buying was driven by a 35% reduction in the EUR long to an October 2022 low at 48.3k contacts. In addition, Bank of Japan’s dovish hike helped trigger fresh short selling of the yen, the AUD net short reached a record high at 107.5k contracts (USD 7 bn equivalent) while the CHF short reached a 28-month high at 20.5k contracts.

Non-commercial long, short and net positions across key IMM currency futures

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 higher for a third week, but while recent gains had been driven by broad sector strength, the gains seen during the latest reporting week were concentrated in energy and a few other commodities, most notably silver, copper, cocoa and coffee.

On an individual level, three commodities; crude oil, silver and copper stood out with buying of the three amounting to a nominal value of USD 13.4 billion, on an individual level lifting the net long of all three to one-year highs. With such an inflow of fresh longs these three markets were left vulnerable to the end of week correction that was triggered by a sharply stronger dollar, not least against the Chinese renminbi.

Managed money long, short and net positions in the week to March 19.
Energy: Strong week for the sector led by 7% gains in crude oil, lifting the Brent and WTI combined net long to a five-month high at 509k contracts. Russian fuel supply concerns lifted the gas oil (diesel) long by 42% while higher natural gas reduced the short by 20%
Metals: Funds turned small net sellers of gold following a two-week rush that saw the net long jump 91.5k contracts to a two-year high. Instead, silver buying picked up pace, driving the net long to an April 2022 high. Copper’s temporary upside break lifted the net long to a 14-month high, leaving it exposed to end of week profit taking as the dollar strengthened
Grains: short covering extended to a second week led by the soy complex and corn
Softs: funds continued to sell into surging cocoa prices, reducing the net long to a one-year low, and with coffee and cocoa also sold the sector suffered an overall 5% reduction in the combined net long.

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


Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
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-hk/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 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 or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

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 may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

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

The information or the products and services referred to on this site 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 are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.