COT Report: Limited dollar demand despite continued strength; Accelerated metals selling led by gold

Commodities:

In the latest reporting week, the Bloomberg Commodity Index lost 2.2%, with precious and industrial metals experiencing the largest losses. These were driven by a 2.1% gain in the USD and concerns about the impact of a trade war with tariffs on demand for key industrial metals, particularly in China. Growth concerns, ample supply, and dollar strength led to crude and fuel product weakness—albeit to a much lesser degree than metals—while natural gas rallied strongly due to increased demand and falling production. The agriculture sector traded mixed, with a small loss in grains offset by continued demand for softs and livestock.

Managed money accounts, from hedge funds to CTAs, responded to these developments by becoming relatively aggressive sellers of metals, led by gold, silver, and copper. This was primarily driven by long liquidation, while increased short selling contributed to a reduction in WTI and Brent crude oil net longs. Grains saw a five-fold increase in the corn long, wheat selling accelerated, and a rotation continued between out-of-favour soymeal and in-demand soy oil. Strong cocoa and coffee gains supported the accumulation of fresh longs, while net longs across all three livestock contracts reached new one-year highs.

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.

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