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COT: Market uncertainty drives gold rush and crude selling

Commodities
Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, October 24. A week that saw global stock markets suffer from increased bond market volatility, geopolitical tensions in the Middle East and a so far volatile US earnings season. The dollar traded steadily against a broad basket of currencies while the commodity sector saw weakness in energy and grains, being offset by strength in softs and not least precious metals where a near record buying pace was maintained in gold

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.

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 weekly: Gas, gold and cocoa on top in October
Global Market Quick Take: Europe – October 23 2023

 

  
This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, October 24. A week that saw global stock markets suffer from increased bond market volatility, geopolitical tensions in the Middle East and a so far volatile US earnings season. The dollar traded steadily against a broad basket of currencies while the commodity sector saw weakness in energy and grains, being offset by strength in precious metals and softs. 

Commodity sector:


A flat performance of the Bloomberg Commodity index disguised some major movements across the different sectors. The energy sector, led by losses in crude oil and diesel, traded lower with the market focus alternating between the risk of a not yet realized and low probability disruption to supply from the Middle East, and weakening fundamentals into the low demand season. Elsewhere the metal sectors traded mixed with gold attracting most of the buying interest from investors seeking shelter from elevated geo-risks and volatile price action in the US bond and equity market. Copper's ability to hold support combined with additional economic support measures from the Chinese government supported a small gain. Finally, the agriculture sector saw the grains sector show signs of stabilizing while the softs sector continued higher supported by gains in cocoa and coffee. 

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Crude oil traders continued to focus more on current fundamentals than the risk of a not yet realized supply disruption. During the week they cut their net long in WTI and Brent by 17.4k to 431k, some 129k below the September peak, with the reduction primarily due to 18k lots of fresh short positions.
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Money managers more than doubled their gold net long to 90.7k lots on a combination of fresh longs and short covering. On the one hand it raises the risk of profit taking while on the other a relative weak long/short ratio and the net long some 57k lots below the Q2 banking crisis peak pointing to more upside risk. Silver and especially platinum demand remain weak while a small recovery in copper from key support helped drive a 17% reduction in the net short.
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In grains, the net short was cut for a second week, this time by 60k to -110k lots. A small soybean short, flipped back to a 7.7k lots net long, while short covering was seen in corn (+8.4k to -100.4k) and wheat (+12.2k to -92.3k)
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In softs, the coffee short flipped back to a 7.5k lots net long following the biggest one-week buying spree in four years. Sugar held steady, cocoa length rose 12% while the cotton long saw a 17% reduction. Livestock length cut led by a 24% reduction in live cattle
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In forex, speculators bought EUR, CHF and JPY but selling of NZD, MXN and not least JPY left the gross dollar long up just 4% on the week to $11.3 bn, a one-year high. Traders currently hold long IMM futures positions in EUR ($11.3bn) and MXN ($1bn) and short position in the rest led by JPY(-$8.4bn), AUD (-$5.3bn) and CAD (-$3.5bn
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In fixed income, leveraged funds sold 2’s and 10-year Ultras while covering short positions in 5’s and 30-year T-bonds. Overall, the DV01 value of the entire short position across the yield curve saw a $4.3 million reduction to $404 million per basis point change.

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