COT: Gold left exposed following record buying spree

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

To download your copy of the Commitment of Traders: Commodity report for the week ending June 4, click here.

Hedge funds increased bets on rising commodity prices across 24 major futures contracts by 57% to 401k lots during the week to June 4. The report, however, showed some major differences across the three sectors as trade wars, recession risks, dollar movements and planting delays all played their different parts.

The aggressive selling of oil, natural gas and copper and the concurrent strong buying of gold and grains have left these commodities exposed to some short term retracements should a change in the fundamental or technical outlook occur. 

Crude oil, products and particularly natural gas were sold in response to big price drops triggered by demand worries and rising US stockpiles. The increased focus on demand worries, despite signs of tightness, has driven a 32% reduction in the combined WTI and Brent crude net-long during the past five weeks. This helps to explain the strong recovery last week after both contracts founds support at $50 and $60/barrel respectively.

Recession risks continued to attract macro fund selling of HG Copper. The net-short rose by 5k to 46k lots, a three-year high and nearly a record. There is some short-term focus on $2.60/lb as the neckline of a big head-and-shoulder formation going back to early 2017. 

Accelerated gold buying saw the net-long jump by a record 85k lots to 118k lots, a 14-month high. With the wall of resistance between $1,350 and $1,390/oz yet to be broken, these recently established longs will be facing an anxious week. Not least following the renewed rally in stocks and small rise in bond yields since Friday.

The silver net-short was cut in half to 20k lots but the fact that this move failed to reduce its multi-decade discount to gold will keep recent buyers worried.

The spectacular race to cut short positions in US grain and soy futures continued last week. In just three weeks, funds have bought a record 510k lots of soybeans, wheat and corn. The latter has seen the most dramatic turnaround, with funds moving from a record short in April to now a net-long of 108k lots.

The market will now turn its focus to today’s WASDE report from the US Department of Agriculture at 16:00 GMT. It will show the US government’s forecasts for how much the troubled planting season has altered projections for production, yield and stocks. 

In soft commodities, the record sugar net-short was cut by 13% as the price reversed course. The 10% price jump in Arabica coffee supported a 37% reduction in the net-short. But with longs being reduced as well during the rally, the upside potential does not look that promising at this stage.

What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

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.

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Ole Hansen

Head of Commodity Strategy

Saxo Bank