Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
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COT Report: Elevated commodities longs face short-term risks as Trump 2.0 era begins
Ole Hansen
Head of Commodity Strategy
Key points:
- Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week ending Tuesday, 14 January 2025.
- The combined USD long versus eight IMM futures contracts reached a fresh six-year high
- Hedge funds buying of commodities continued, with the net long (26 futures) rising to near a three-year high, with buying led by crude oil, natural gas, copper, soybeans, and corn
- The high level of speculative interest has for now left some of those gains exposed to profit-taking, especially with Trump’s return to the White House potentially signaling a period of uncertainty and turmoil
Forex:
In forex, speculators responded to another week of broad dollar strength by lifting their dollar long versus eight IMM futures to a fresh six-year high at USD 36 billion. Except for a second week of short covering in EUR where both long and short positions were reduced, and profit taking on CAD and NZD short positions, the trend was generally towards continued demand for the USD. Not least driven by accelerated selling of GBP which saw the net return to neutral, and JPY as USDJPY reached a six-month high.
The biggest short positions against the dollar is held in CAD (USD -11.7 billion equivalent), EUR (USD -7.8 billion), and CHF (USD -5.3 billion)
Commodities:
In commodities, aggressive hedge fund buying persisted for a third consecutive week through January 14, pushing net long positions across 26 major futures contracts to a near three-year high of 1.56 million contracts, valued at approximately USD 150 billion. With managed money accounts focusing mainly on momentum, the broad rally seen during the first two trading weeks of January helped drive the rapid accumulation of longs. This has inadvertently left some of those gains exposed to profit-taking, especially with Trump’s return to the White House potentially signaling a period of uncertainty and turmoil.
In the latest reporting week, the energy sector gained 6.8%, grains 3.3%, and industrial metals 2.2%. It is no surprise that the most sought-after commodities belonged to these sectors, with buying led by crude oil, natural gas, copper, soybeans, and corn. Additionally, fresh demand for gold and continued buying across livestock made up the bulk of last week’s net buying.
The much-talked-about dislocation between metal futures traded in New York—where prices have spiked relative to their corresponding spot prices in London—did not have any material impact on gold and silver demand. However, it was a key source of buying for copper and platinum through short covering.
In a recent update, I wrote the following:
“Regarding the uprooting of normal trading dynamics, we focus on recent developments in US-traded futures markets, particularly for metals such as HG copper, gold, silver, and platinum. In these markets, prices have risen to levels relative to spot prices that are not justified by the typical costs associated with funding and storage. The New York futures market, with its deep liquidity and round-the-clock trading, is frequently used by traders and banks to hedge physical market commitments through short selling.
However, Trump’s pledges to impose universal tariffs on all goods from all countries have raised concerns. Specifically, these tariffs could increase the cost of holding short positions for future delivery. If the required metals to cover a short futures position need to be imported, the additional tariff costs could make short selling significantly more expensive.”
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.
Recent commodity articles:
17 Jan 2025: Commodities weekly: Strong January rally pauses ahead of Trump
17 Jan 2025: Podcast: Brace for Monday, as a new era begins
15 Jan 2025: Q1 2025 Commodity outlook: A bumpy road ahead calls for diversification
14 Jan 2025: COT Report: Hedge fund long jumps to 17-month high led by crude, gas and metals
13 Jan 2025: Crude oil rally amid winter demand and Russian sanctions
10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: COT Report: Managed money's year-end positioning in forex and commodities
20 Dec 2024: Silver's resurgence in 2024: A precious metal with an industrial edge
17 Dec 2024: Investors cash in: Gold and silver see year-end profit taking
17 Dec 2024: Podcast: A wild ride in 2025 awaits
16 Dec 2024: COT Report: Agriculture in demand; Traders lift bets against the euro
13 Dec 2024: Commodities weekly: The forward curve and impact on returns
10 Dec 2024: Brazil's coffee crisis pushes Arabica to all-time high
9 Dec 2024: COT Report: Speculators bought crude and gold: euro shorts reach 4-year peak
6 Dec 2024: Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
3 Dec 2024: COT: Mixed week in commodities as dollar buying continued
29 Nov 2024: Commodities take a breather after action-packed November
28 Nov 2024: Coffee surges to a 47-year high
28 Nov 2024: Choppy gold market turns to Santa for December support
27 Nov 2024: Podcast: Will gold enjoy a Santa rally for the eight year in a row?
25 Nov 2024: COT Report: USD long jumps; Mixed week in commodities
22 Nov 2024: Commodity weekly: Strongest performance since April
19 Nov 2024: Gold and silver rise on Russia-US tensions
18 Nov 2024: COT: Limited dollar demand despite strength; Acclerated metals selling
11 Nov 2024: COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: Podcast: US election and the market reactions, including commodities
6 Nov 2024: Trump and Republican victories spark commodity decline
4 Nov 2024: COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: Commodity weekly: Some weakness seen ahead of critical week
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