Slumping Gold Long; Oil sold despite surge

Despite hitting seven-year highs, speculators sold crude oil for a third week as the WTI buying was more than offset by a 5% reduction in Brent long. The reduction in Brent was driven by profit taking and an increase in gross selling to a five-week high at 73.6k. The next update will let us know if the short cover was behind the weekend rally that saw Brent close above $92 for the first time since October 2014. With the recent cuts, the combined net long at 533 000 lots remains more than 200,000 lots below the last peak of last June when prices were more than 25% lower than today.

The surprise cuts despite the strong momentum in recent weeks can likely be partly explained by the rising level of volatility in the markets forcing speculators who target a certain level of volatility to reduce their exposure. Thus going against the prevailing behavior where bottoms following the trend and momentum would normally gain strength.

The strong technical buildup of speculators in gold and silver just ahead of the January 26 hawkish FOMC meeting sparked a major week of selling. The long position in gold was reduced by 47% to 62,500 lots, a four-month low, while the 58% reduction in silver wiped out six weeks of buying. Gold’s ability to rebound above $1,800 last week, potentially supported by a recent rise in gross selling to 60,000 lots, the biggest bet on lower prices since October. The Chinese New Year lull saw copper sideways trade funds cut their net long position by a third to a six-week low of 19.2k and down 65% from the recent cycle high. last October.


The grain sector was mixed with a booming soybean complex attraction 64,000 lots of net purchases carrying the combined long to a nine-month high of 312,000 lots. Corn was bought for a second week with a net long position of 373,000 lots, only 30,000 lots below the ten-year high recorded last April. Wheat, meanwhile, struggled with the 6% selloff, triggering a doubling in net selling to 26,400 lots.
In softs, the sugar sell-off continued with the 25% cut reducing the net long position to 71,000 lots, the lowest since June 2020. Cocoa traders extended their net short position as prices rose increased by more than 4%. The length of the cafe has seen a slight reduction, but overall the net hasn’t changed much over the past four months.


The net short position in Cboe VIX futures has been reduced to the lowest since May 2020 as speculators continue to cut short bets in response to rising volatility after weeks of market turbulence. The VIX curve normally trades in contango, with spot volatility being lower than future volatility. Such a structure favors those who hold and roll short positions in VIX futures. However, the recent rise in spot volatility has so far reduced the appeal of holding net short positions.


Speculators continued to cut bullish bets on the dollar in the week ending last Tuesday, February 1, and after four weeks of net selling, large crude against ten IMM currency futures and the dollar index fell by 42% to a 4.5-month low at $13.7 billion.

The latest cut came at the right time after hawkish central bank meetings at the ECB and BoE helped send the dollar lower on Thursday. Looking under the hood however, we find untimely selling of Euros (-1,844 lots) and not least of British Pounds (-15,842), with net selling on the latter jumping 200% to 23,605 lots or l equivalent of 2 billion dollars. All other major currencies were bought, led by the JPY, CAD and AUD, and together with the massive buying of the ruble, they more than offset the mentioned selling of the euro and the pound.

What is the Merchant Engagements Report?

COT reports are published by the US Commodity Futures Trading Commission (CFTC) and ICE Exchange Europe for Brent crude oil and diesel. They are released every Friday after the US closes with data for the week ending the previous Tuesday. They break down open interest in futures markets into different user groups based on asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Money Managed and other

Finances: Concessionaire/Intermediary; Asset Manager/Institutional; Leveraged funds and other

Forex: A wide split between commercial and non-commercial (speculators)

The reasons why we mainly focus on the behavior of highlighted groups are:

  • They are likely to have tight stops and no underlying exposure who is covered
  • It makes them most responsive to change in the fundamental or technical evolution of prices
  • It offers views of big trends but also helps to decipher when a reversal is imminent

Ole Hansenhead of commodity strategy at Saxo Bank.

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