COT: Slumping gold long; oil sold despite surging
The COT reports published weekly by the US CFTC highlight futures positions and changes made by hedge funds across commodities, forex and financials. This update covers the week to February 1, a week where global stocks staged a strong comeback from the January sell-off, bonds and the dollar held steady while the commodity sector surged to a fresh record high. Speculators reacted to these developments by cutting their dollar longs to a 4-1/2-month low, cutting their precious metals exposure in half while also reduce oil longs.
This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, February 1. A week where global stocks staged a strong comeback from the January sell-off. However, with the Fed signaling its readiness to tighten monetary policy, the market, as signaled through the smallest VIX short since May 2020, remains unconvinced about the market’s ability to recover more ground. Bonds and the dollar held steady ahead of Thursday when hawkish BOE and ECB central bank meetings drove yields higher and the dollar lower.
Commodities : The Bloomberg Commodity Index continued its weeklong ascent with the near 3% gain taking the index to a fresh record high. Gains were led by the energy and grains sectors with natural gas (22%), crude oil (3%) and soybeans (9%) recording strong gains. Precious metals meanwhile took a hit following the hawkish FOMC meeting on January 26. With soft commodities and copper also trading weaker the overall position held by large money managers held steady with additional longs in gas oil, natural gas, soybeans and cattle being offset by reductions across gold and silver, as well as copper, wheat and sugar.
Energy: Despite hitting seven-year highs, speculators sold crude oil for a third week with buying of WTI being more than offset by a 5% reduction in the Brent long. The reduction in Brent being driven by profit taking and an increase in the gross short to a five-week high at 73.6k. The next update will give us a hint whether short covering was behind the end of week rally which saw Brent close above $92 for the first time since October 2014. With the recent reductions the combined net long at 533k lots remains more than 200k lots below the latest peak from last June when prices were more than 25% below todays.
The surprise reductions despite strong momentum in recent weeks can probably be partly explained by the rising level of volatility across markets forcing speculators who target a certain level of volatility to reduce their exposure. Thereby going against the prevailing behavior where trend and momentum following funds would normally buy into strength.
Information Source: By Ole Hansen, Head of Commodity Strategy, Saxo Bank
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.
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