Industrial metals prices weighed down by trade, demand fears

COT: Copper short doubles in week of broad fund selling

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds and other speculators across commodities and forex up until last Tuesday, May 10. A week that saw continued risk off as the combination of high rates and potential recession as inflation surges kept stocks under pressure while lifting bond yields and the dollar. Commodities hurt by the prospect for lower growth, most critically in China, saw broad selling with funds cutting their exposure to a 21 month low. Focus on copper with funds doubling their short position ahead of a potential easing of lockdowns in China


Saxo Bank publishes 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.

This summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, May 10. A week where a continued sell off in global stocks pushed the S&P 500 below 4,000 for the first time in more than a year while US bond yields climbed to a fresh cycle high. Financial markets have become increasingly challenged by a combination of high rates and a potential recession as inflation surges. In addition the wind has come out of the commodity bull market with China, a major consumer, paying an increasingly high price for its Covid Zero Policy. Adding to this continued dollar strength, and most asset classes from bonds and stocks to cryptos and commodities remain under pressure, and speculators in commodities and forex have adjusting their positions accordingly. 

Commodities

The Bloomberg Commodity Spot index dropped 3.1% on the week with losses in energy (-4%), industrial metals (-6.1%), precious metals (-2.5%) and softs (-3.7%) while grains managed a small plus led by wheat. Overall hedge funds and money managers responded to these changes by cutting bullish bets across the 24 major futures tracked in this by 9% to a 21 month low at 1.68 million lots, a 25% reduction since the recent peak in late February. 

Twenty out of 24 commodity futures tracked in this update traded lower on the week with eighteen of those seeing positions being reduced with four commodities seeing position levels drop to the lowest in at least a year. 

  

16olh_COT1

Latest updates on crude oil, gold and wheat can be found in our daily Quick Take here

Energy: Crude oil continued rangebound trading behavior triggered a small amount of net selling of WTI and Brent. The combined long at 410k lots remains near a cycle low with the current price action being high on uncertainty and low on trading signals. The product space was mixed with gas oil and gasoline seeing net reductions while the net long in NY Diesel rose by 20%.

Metals: The exodus out of metals, both precious and industrial continued, and the combined long at just 49k lots across the five futures contract tracked, was the lowest in almost three years. Gold, still holding above its 200-day moving average last Tuesday saw its net long reduced for a fourth week to a three-month low at 73.9k lots with most of the 9k reduction being driven by long liquidation, and not fresh short selling. In silver speculators held a neutral position following an 89% slump in the net long to just 1.7k lots, with the bulk of the reduction being by short sellers looking for an even deeper slump.

In copper, the net short doubled to a two-year high at 17.7k lots as the price drop extended towards key support at $4/lb. China lockdowns have been the main catalyst behind the recent 25% decline in the Bloomberg Industrial Metal Index. It highlights the potential risk of a price reversal once lockdowns start to ease, a bounce that may now receive some additional momentum from the hedge funds covering some of their short position. 

16olh_cot2

Agriculture: The whole sector, except wheat, got caught up in the strong dollar risk off move with the biggest reductions seen in soybeans, sugar, corn and cocoa. In grains, the net long across the six futures contract tracked in this was reduced for a third week, this after reaching a 12-year high last month. Surging wheat prices only managed to attract a small amount of buying, and despite an overriding bullish outlook due to global weather woes and Ukraine war, the net long in Chicago and Kansas wheat remains muted at 58k lots.

Forex
Continued broad dollar strength drove a 5% increase in the gross dollar long against ten IMM futures and the Dollar Index. However, the muted $1.2 billion increase to $22.8 billion, a four- month high, was caused by speculators (wrongly as it turned out) trying to buy EURUSD ahead of €1.05 support. This action triggered 22.9k lots or $3 billion equivalent of euro buying which helped flip the position back to a net long, just days before the break below force fresh long liquidation. 

16olh_cot3
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 reasons why we focus primarily on the behavior of the highlighted groups 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

 

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • 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

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

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