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: Commodity buying extends to fourth week, driven by crude, gas, and gold
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, 21 January 2025.
- In forex, net sellers of the USD emerged for the first time in seven weeks, primarily driven by strong demand for JPY and CAD.
- In commodities, hedge fund buying extended into a fourth week, with the total net long reaching a fresh 31-month high
- Demand was concentrated in crude oil, natural gas, gold, soybeans and corn with sugar seeing most of the selling interest.
Forex:
In forex, speculators responded to emerging USD weakness by turning net sellers of the greenback for the first time in seven weeks. Overall, however, the response to the 1.1% drop in the Dollar Index was mixed, with light net selling of EUR, CHF, and GBP being more than offset by heavy buying of JPY and CAD. The result was a small 3% reduction in the gross dollar long versus eight IMM currency futures from a six-year high to USD 33.7 billion.
Ahead of Trump’s inauguration, the biggest short position had been held in CAD; however, with no tariffs being imposed on day one, the net short position saw a 10% reduction to 151k contracts, or USD 10.5 billion equivalent. The JPY short was cut in half as the JPY rallied 1.5% ahead of Friday’s expected rate hike. Mexico, in Trump’s cross-hairs, saw continued selling of the peso flip the position to a small net short for the first time in 22 months.
Commodities:
In commodities, hedge fund buying extended into a fourth week, albeit at a slowing pace, with the total net long positions across 27 major futures contracts reaching a fresh 31-month high at 1.62 million contracts, valued at approximately USD 161 billion. The reporting week included the first two days of Trump’s presidency, and despite softer price action across the energy sector, funds continued their month-long buying spree, especially in crude oil. This left prices exposed to a correction after Brent and WTI began trending lower amid tariffs and increased production concerns.
Elsewhere, precious metal demand primarily benefited gold, which saw the net long position increase by 10% to 234k contracts, still below the 255k from last September. However, digging a bit deeper, we find the gross short position reduced to near zero, consequently boosting the long/short ratio to an unhealthy 43 longs per 1 short. This is unhealthy in the sense that a deeper correction, where the speculative long needs to be reduced, will struggle to find a speculative short position willing to absorb the selling.
Buying interest across the agriculture sector remained generally healthy, with the exception of sugar, where the net short jumped to an April 2020 high at 51.7k contracts. In demand was corn, which helped lift the net long to a May 2022 high at 312k contracts, while record high prices in live and feeder cattle gave already very elevated long positions an additional boost.
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:
24 Jan 2025: Commodities weekly: Trump tariff threats and energy agenda in focus
24 Jan 2025: Podcast: Four days in, Trump continues to dominate headlines, but ...
23 Jan 2025: Crude oil weakens amid tariff uncertainty
22 Jan 2025: Gold and silver see fresh gains as Trump 2.0 era begins
20 Jan 2025: Podcast: Trump 2.0 swings into action
20 Jan 2025: COT Report: Elevated commodities longs face short-term risks
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
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