COT: Speculators flock to dollars, exit commodities ahead of the US elections

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 to last Tuesday, 29 October
  • Continued and aggressive dollar buying, led by heavy selling of EUR, JPY and CAD lifted the dollarlong to a 3-1/2-month high
  • A week of losses across most commodities triggered broad selling from funds led by crude oil, gas oil, gold, silver and soybeans

Forex:

Speculators' demand for USD picked up additional momentum in the week to 29 October, when Treasury yields and the dollar continued to strengthen ahead of the US election as traders positioned themselves for the risk of a potential red sweep—a result that may lead to excessive government spending, pushing the debt-to-GDP ratio higher, while fueling inflation fears, potentially further slowing the pace of expected rate cuts, thereby making the greenback relatively more attractive from a rate differential perspective.

Overall, the net USD long against eight IMM currency futures almost doubled to USD 18.1 billion, a 3-1/2-month high, led by continued and aggressive selling of EUR, JPY, and CAD. The EUR net short jumped to a March 2020 high at 50,000 contracts; the JPY flipped back to a net short of 37,600 contracts, while the selling of 26,900 contracts of CAD lifted the net short to 167,500 contracts, or USD 12 billion equivalent, and by far the biggest net short against the dollar.

Non-commercial IMM futures positions versus the dollar in week to October 29
Non-commercial long, short and net positions held across key IMM currency futures

Commodities:

In the latest reporting week, the Bloomberg Commodity Index fell 1.5%, with broad losses seen across all sectors except livestock, which rose, and precious metals, which traded flat. The biggest losing sector was energy, with crude oil losing more than 6%, while natural gas slumped by around 10%. The metals sector was mixed, with long liquidation in gold and silver on increased election and FOMC jitters joined by another week of copper selling, while the PGMs stood out, supported by a near 14% rally in palladium on continued short covering amid Russian supply risks. Grains traded heavily with the US harvest weighing on prices, while softs were mixed, with a strong rebound in cocoa as the main focus.

Managed money accounts, such as hedge funds and CTAs, responded to these developments by being broad sellers, with 20 out of the 27 major commodity futures tracked in this update seeing net selling, led by crude oil, gas oil (diesel), gold, silver, and soybeans, while demand was concentrated in platinum, palladium, and corn.

Managed money long, short and net commodities positions in the week to October 29
Energy: Brent and WTI crude oil selling extended to a third week, with the combined net long falling to 142,000 contracts as traders sold back half of what they bought during the September to October price bounce. A net short in distillates (diesel and heating fuel) continued to rise, led by the London gas oil contract.
Metals: Gold saw a small amount of selling as the net long continued to hover near a four-year high, while the silver long fell from a 2-1/2-year high. Weeks of palladium short covering brought the net back to neutral, while copper selling extended to a fourth week.
Grains: Another mixed week with continued selling of the soybean complex—not least soymeal—and wheat more than offsetting strong buying of corn, triggering a 75% reduction and the smallest net short in 15 months.
Softs: Broad selling led by sugar, coffee, and cotton.

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:

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7 Oct 2024: 
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2 Oct 2024: 
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26 Sept 2024: 
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24 Sept 2024: 
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23 Sept 2024: 
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20 Sept 2024: 
Commodity weekly: Commodities boosted by bumper rate cut
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10 Sept 2024: 
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9 Sept 2024: 
COT: Crude long cut to 12-year low; Dollar short more than doubling
5 Sept 2024: 
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4 Sept 2024: 
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3 Sept 2024: 
Chinese economic woes drag down crude oil and copper
2 Sept 2024: 
COT: Commodities see broad demand as the USD slumps to a net short


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