Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Gold and coffee shorts getting squeezed
Ole Hansen
Head of Commodity Strategy
Summary: Leveraged funds were net-buyers of commodities for a third consecutive week with broad-based buying of agriculture and natural gas offsetting selling elsewhere, most noticeably in crude oil and gold.
Saxo Bank publishes two 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.
To download your copy of the Commitment of Traders: Commodities report for the week ending October 9, click here.
Hedge funds remained unconvinced about the bullish oil narrative which in recent weeks drove the price to a four-year high. In the week to October 9 they sold both Brent and WTI for a second week as supply worries eased and demand concerns began receiving some attention. The WTI net-long reached a one-year low and it has now been sold in 11 out of the past 13 weeks.
In gold the net-short rose by 41% to a fresh record of 103k lots just days before the yellow metal jumped by the most since 2016. The fact that so many fresh shorts were caught offside by emerging safe-haven demand and softer yields helps to explain the thirty-dollar surge last Thursday. Short sellers have been challenged following the break above $,210/oz but long established bears may not begin to worry before $1,240oz.
HG copper was sold with the net-short rising to a three-week high. However, the outlook for tight supply, falling LME stocks and strong China import data are unlikely to support the latest short accumulation.
In grains, short-covering continued to be led by corn and the soybean complex. During the week soybeans received some support with rain across the US Midwest and Plains delaying the harvest while potentially negatively impacting the crop condition. Overall the combined net-short in the three major crops was reduced by 22k lots to 92k lots, not far from the five-year average for this time of year.
A stronger Brazilian real, tighter sugar supply on EU export concerns and a technical breakout in coffee helped trigger a 57% and 16% reduction in the net-shorts. The latter has been a classical example of why it is important to follow the COT updates. A record short due to weak fundamentals had driven coffee to a 12-year low but in just three weeks it has retraced almost half of the previous 12-month decline.
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