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COT: Specs rush back into gold, elevated JPY short in focus

Commodities
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 during the week to last Tuesday, March 5.

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 or technical developments. 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.

This summary highlights futures positions and changes made by hedge funds across commodities and forex in the week to last Tuesday, March 5. A strong week for precious metals, led by gold’s surge to a record high, supported by a softer dollar and weaker bond yields on signs of softening economic data ahead of Fed Chair Powell’s testimony to Congress. In forex, the focus centered around the Japanese yen, and the risk of accelerated short covering as the Bank of Japan move closer to hiking rates for the first time since 2007. 

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 during the reporting period with gains primarily being led by precious metals with silver adding 5.4% while gold reached a fresh record high. The energy sector traded mixed with selling of crude and fuel, being offset by an 8% jump in natural gas as more producers announced cutbacks in order to support prices through a lowering of bloated stock levels. The grains sector traded mixed with net selling resuming amid a global overhang of key crops, led by soybeans and corn. Cocoa’s recent parabolic rise paused after producer short covering showed signs of running out of steam. 

On an individual level, the biggest changes based on nominal values was the USD 13.5 billion increase in the gold net long to USD 28.1 billion, in the process getting close to exceeding the combined long exposure in crude oil which fell USD 0.8 billion to USD 33.8 billion. Other notable buying activity was centered around Silver and natural gas while sellers attacked Brent, copper, soybeans, and sugar. 

Energy: For a second week, WTI was bought, and Brent sold, overall cutting the net long by 9k to 421k. The natural gas short was cut by 48% with distillates also exposed to long liquidation.
Metals: Gold’s surge to a record was supported by a 93% jump in the fund long to 131k contracts, still below the Dec peak at 131k and the 2019 record high at 292k contracts. Silver flipped to a net long while flat trading copper flipped back to a net short
Grains: selling resumed led by the soybeans complex in the process lifting the combined soy, corn and wheat net short back to near a record
Softs: Cocoa selling extended to a sixth week albeit at a slowing pace as short covering from producers showed signs of running out of steam. Sugar length cut by 36% while continued cotton lifted the net long to near the 2021 high at 96.7k
Forex: the non-commercial dollar long held steady with buying of EUR, GBP and not least the heavily shorted JPY being offset by selling of CHF, AUD and CAD. Ahead of the end of week rally, the JPY short had been cut by 10% from a 7-year high to -119k contracts (USD 10 billion equivalent)

Commodity articles:

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

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

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