Log in Open account
Australia
COT: Crude oil and gold in demand ahead of FOMC COT: Crude oil and gold in demand ahead of FOMC COT: Crude oil and gold in demand ahead of FOMC

COT: Crude oil and gold in demand ahead of FOMC

Commodities
Ole Hansen

Head of Commodity Strategy

Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities, forex and bond futures during the week to Tuesday, September 19. A week that saw stock markets trade softer with US Treasury yields rising ahead of last Wednesday FOMC meeting. Despite continued headwinds from a dollar trading near a six-month high, the commodity sector traded higher with gains led by energy and precious metals.

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.

  
 

This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, September 19. A week that saw stock markets trade softer with US Treasury yields risen ahead of last Wednesday FOMC meeting. Despite continued headwinds from a dollar trading near a six-month high, the commodity sector traded higher with gains led by energy and precious metals as well as sugar and coffee.

Commodity sector:

The Bloomberg Commodity index traded higher for a fifth week, supported by 1.2% energy sector rally, firmer investment metals and strong gains in sugar and coffee. Continued tightness in the crude oil and fuel market drove WTI and Brent to fresh cycle highs before running into some mild profit taking. Precious metals meanwhile surprised to the upside with fresh longs and short covering seen ahead of the FOMC meeting, while the agriculture sector remains mixed with harvest pressure hurting grains being partly offset by renewed strength in softs and livestock.

Hedge funds and CTA’s responded to these developments by adding length in crude oil for a fourth week, rebuilding longs in gold and silver while increasing the gross short across grains and soybeans to a 27-month high.

Crude oil and fuel products: Leveraged fund buying of crude oil extended to a fourth week, in the process driving the combined net long in WTI and Brent to a 22-month high at 560k contracts, and while the underlying fundamentals point to higher prices in the short term, positioning looks increasingly stretched. The long/short ratio has surged higher during the past few weeks, driven by a fresh long and not least a collapse in the gross short to a 12-year low just 46k contracts. The product sector was mixed with selling seen in gasoil and gasoline.
Gold, silver and copper: Ahead of last week's FOMC meeting, the speculative long in gold jumped 34% to 66.6k contracts, silver doubled to a still small 2.3k contract long, platinum flipped back to a small 1.1k long while a near record short was maintained in palladium. The bulk of the buying was driven by short covering as funds cut bearish bets ahead of FOMC and despite an ongoing rise in bond yields and the dollar trading near a six-month high. Copper selling saw the net short rise by 55% to 5.8k.
In grains and soybeans, net selling across all but one of the six contracts lifted the combined net short to 208k contracts, the highest conviction in lower prices since June 2020. The bulk of the short being held in corn (-145k) followed by a 109k short in the two wheat contracts.
Softs & Livestock: Buying of sugar extended to a fifth week in response to the price reaching a fresh 12-year high, and at 213k contracts, the net long remains 73k below the 2016 record peak. A 6% jump in Arabica coffee prices supported a 46% reduction in the net short to 16.6k while cocoa and cotton had a quiet week.
In forex, eight weeks of dollar short covering finally saw the net against eight IMM futures flip back to a $4.5 billion long, an 11-monmth high. Selling was led by EUR (-11k), GBP (-12.5k) and AUD (-17.4k), the latter hitting a record short of 97k lots ($6.3 bn equivalent), while the Kiwi short reach a 2019 high at 21k ($1.3 bn eq)
In fixed income, flows were mixed with leveraged funds selling 2s, 5s as well as long bonds and ultras. Despite some buying of 10’s and 10’s ultra to offset, the overall DV01, being the value of a one basis point yield change, increased to a massive $419 million

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article

  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article

  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article

  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article

  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia
Products & pricing
Asset Management
    Platforms
    Accounts & service
    General
    Other
    Legal

    Trading can result in losses. Please ensure you understand the risks.

    The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

    Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

    Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

    Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

    The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

    Please click here to view our full disclaimer.