COT: Hedge funds propel multiple commodities positions beyond one-year highs

COT: Hedge funds propel multiple commodities positions beyond one-year highs

Ole Hansen

Head of Commodity Strategy

Key points:

  • Commitment of Traders report highlighting futures positions and changes made by speculators across forex and commodities during the week to April 9 
  • Limited gold and crude reaction to well-flagged Iranian attack; Fresh US/UK sanctions lift aluminum and nickel prices
  • Speculators boost several in-demand commodities length beyond their one year highs

Gold and crude oil's response to Iran's drone and missile attack

Iran's well-flagged attack on Israel over the weekend triggered a muted reaction overnight in Asia with Brent touching USD 91 before turning lower. Crude prices already included a risk premium, and unless the market faces a real disruption to supply, the risk of an upside spike towards USD 100 remains limited. All eyes now on Israel, and their response, especially after President Biden urged restraint and after Iran said they do not intend to continue strikes.

Gold trades a tad firmer after suffering a near USD 100 correction on Friday, but with a major risk premium already priced in and with the dollar being the short-term safe haven focus, the combination of yield strength following last weeks surge, the metal may struggle to regain last week’s strong momentum, instead entering a period of consolidation. Watch support at USD 2320 followed by USD 2290.

Limited impact of US/UK restrictions on Russian metal sales

On Friday, the US and the UK took further action to limit Russian profit from the trading of its copper, aluminum and nickel. The latest order restricts Russian metals mined after April 13 from entering the metal exchanges in London and New York. Traders responded to the news by sending aluminum and nickel higher on the Asian opening by around 9% before pairing back most of those gains in the realisation this action may not fundamentally change the overall supply-demand balance. China holds an outsized influence on the mined metal market, a role that will only have strengthen by this action, leaving them in a position to force even deeper discounts from Russian suppliers.

COT on forex

In the forex market, flows ended up being somewhat mixed, but for a fourth week in a row still skewed towards dollar buying, resulting in the gross dollar long vs eight IMM forex futures rising by 10% to USD 17.8 billion, a fresh 19-month high. Selling of CHF, GBP, JPY and CAD being partly offset by shortcovering in EUR, nearly doubling the net-long, and AUD, as well as continued demand for high-interest paying MXN driving the net long to a fresh four-year high.

The JPY net short jumped to 162k contracts (USD 13.5 billion) and highest since 2007 while the CHF short at 32k contracts (USD 4.4 billion) was the highest in almost five years.

Non-commercial IMM futures positions versus the dollar

COT on Commodities

In the week to April 9, the Bloomberg Commodity Total Return index rose 2.2% to trade near a six-month high, led by strong gains across precious (+4.6%) and industrial metals (+5.7%). Excluding natural gas, the energy sector rose 2.2% and was among these three sectors managed money accounts from hedge funds to CTA’s focused their buying interest while the agricultural sector saw a very mixed reaction.

Overall, the big three markets of crude oil, copper and gold all saw net buying which lifted the total net long to a July 2021 high at 772k contracts, representing a nominal value of USD 96 billion. Weeks of buying in response to an improved technical and fundamental outlook for key commodities saw several positions extend beyond their one-year highs, most notably: Brent (2-1/2-year high), RBOB Gasoline (+3 yr high), Gold (near 4-year high), Silver (2-year high), HG Copper (2-1/2-year high), Arabica coffee (record high), Lean Hogs (10-year high)

Managed money long, short and net positions in the week to April 9
Energy: All crude and fuel contracts saw net buying with the combined net long reaching a fresh two-year high at 728k contracts, with the bulk being held in the two crude oil contracts of WTI (238k) and not least Brent (304k)
Metals: Gold’s 3.5% continued rally triggered no response from funds, highlighting an emerging reluctance to add more exposure at this stage. Silver’s 8% rally only managed to lift the net long by 13% to a two-year high. Underinvested traders rushed into copper as the price broke higher, lifting the net long by 230% to a 2-1/2-year high.
Grains: Funds maintained an overall and relatively aggressive negative view on the sector with shortcovering in soymeal and CBT wheat being offset by selling of the others, overall leaving the net short of the three major crops near a record at 490k contracts.
Softs: Despite showing signs of price reacceleration, the cocoa net long was unchanged at a one-year low while a 7.5% Arabica coffee rally helped lift the net long to a fresh record. The Lean Hogs long reached a ten-year high just

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.


Commodity articles:

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
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
27 Mar 2024: 
Crude oil maintains support amidst array of bullish signals
26 Mch 2024: Gold's behaviour points to sustained demand
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

Previous "Commitment of Traders" articles

8 April 2024: COT: Speculative interest in metals and energy gain momentum
2 Apr 2024: 
COT: Gold and crude longs maintained amid strong underlying support
25 Mch 2024: 
COT: Hedge funds zoom in on crude, copper and silver
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


Quarterly Outlook

01 /

  • 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

  • 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...
  • 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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/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 Markets 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

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 such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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

The information or the products and services referred to on this website 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 intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.