Head of Commodity Strategy
Summary: Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, December 13. A week that saw a weaker than expected US CPI print boost risk sentiment across markets, just ahead of last Wednesday’s hawkish FOMC meeting. The dollar short hit a 17-month high while all but a couple of commodities rose, led by natural gas, gold, silver and soybeans
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 reasons why we focus primarily on the behavior of the highlighted groups are:
The commodity sector traded sharply higher on the week with the Bloomberg Commodity Index jumping 4.5% as gains were recorded across all but two of the 24 commodity futures tracked in this update. Most notable gain was the energy sector, led by a near 27% jump in US natural gas while investment metals had a good week with the net long in gold and silver jumping by 50%.
Overall, the net long across 24 commodity futures rose 9% to 1.11 million contracts representing a notional value of $71 billion. Speculator buying was concentrated in natural gas, gold, silver, soybeans, corn and cocoa.
Money managers loaded up on metals during a week that saw the dollar hit a fresh cycle low after another weaker-than-expected CPI surprise. The net long in both gold and silver jumped by 50%, the platinum long rose 19% while copper held steady.
Quick Take comment: Gold (XAUUSD) trades near $1800 as it continues to find support. Since the current run up in gold started in early November, the price has not dipped below its 21-day moving average, today at $1775. Speculators increased bullish gold and silver bets by 50% in the week to December 13 when prices briefly spiked in response to a softer dollar and CPI print. The subsequent setback following Wednesday’s hawkish FOMC, however, was not big enough to rattle recent established longs. For that to happen the price in our opinion as a minimum need to break below $1765. The risk of a recession and the FOMC hiking into economic weakness – potentially without succeeding getting inflation under control - continues to strengthen the upside risk for investment metals in 2023.
The grains sector saw buyers return following a big drop in the net long the previous week. Buying was concentrated in soybeans and soybean meal and corn, the latter following the biggest one-week reduction since March 2019. Softs saw buyers return to coffee, the cocoa position flip back to a net long and a 41% reduction in the cotton net long.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
