COT: Speculators bought energy and grains, sold gold ahead of US elections
Ole Hansen
Responsable de la Stratégie Commodity
Key points:
- Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds across forex and commodities during the week leading up to last Tuesday, 5 November—the day of the US elections.
- Speculators bought euros, sold yen and sterling, overall leaving an elevated dollar long nearly unchanged.
- Temporary buying of crude oil and emerging profit-taking in precious metals amid dollar and yield strength.
- The agriculture sector saw increased demand for grains, led by soybean oil and corn, while the livestock long hit a seven-year high.
Forex:
Speculators spent the days leading up to the US elections cutting exposure on both long and short positions. Overall, this left the gross dollar long versus eight IMM futures down just 3% to a yet elevated USD 17.7 billion. Exceptions to the risk reduction focus were the JPY and CAD, where speculators increased existing short positions in both. As per the table below, the biggest changes were a USD 3.9 billion equivalent reduction in the EUR short, a USD 1.7 billion equivalent reduction in the GBP long, and the mentioned USD 1.6 billion equivalent increase in the JPY short.
Commodities:
In the latest reporting week, the Bloomberg Commodity Index rose 0.7%, partly reversing losses from the previous week, with gains in energy, industrial metals, and grains more than offsetting losses in precious metals and livestock. The reporting week included all market action until a few hours before Donald Trump and the Republican Party’s resounding victory in the US elections became known.
Renewed, but as it turned out, temporary strength across the energy sector saw speculators rush back into crude oil and distillates (diesel), lifting the combined WTI and Brent positions by 54% to 220,000 contracts, while short covering reduced the gas oil short by 65%. Elsewhere, emerging profit-taking across precious metals saw the gold net long reduced to a three-month low, while a second week of selling lowered the silver net long to a two-month low. Both metals, including platinum, traded lower on profit-taking ahead of the US elections, weighed down by dollar strength and rising Treasury yields.
The grains sector short position was further reduced amid strong demand for soybean oil due to surging prices, supported by robust export demand and a rally in rival palm oil prices driven by concerns over lower-than-expected outputs. The bean oil long reached a 20-month high, while corn flipped back to a net long for the first time in 15 months. The softs sector, meanwhile, saw mixed trading, with net selling in sugar and coffee being the main feature, while livestock length continued to increase despite some emerging price weakness.
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.
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30 Oct 2024: Will the US election result spark a gold correction?
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