20 June 2016 at 7:57 GMT
- Bullish commodity futures and options bets rose 11%
- Demand for agriculture commodities in particular surged
- Brexit and a dovish FOMC prompt strong gold demand
- WTI net-long fell 18% to a three-month low amid heavy selling
Fears that British voters might vote themselves out of the EU explains gold's popularity. Pic: iStock
By Ole Hansen
Hedge funds increased bullish commodity futures and options bets by 11% to 1.51 million lots during the week ending June 14.
This was not least due to a continued surge in demand for agriculture commodities such as soybeans, corn, sugar and hogs.
Both the net and gross short positions in HG copper reached a new record high last week. The 27% jump in the net short to 47,109 lots occurred without the support from a weaker price with HGN6 having traded within a relatively tight range above $2/lb during the past three weeks. Considering the elevated short one should look out for any signs of emerging support with the risk reward increasingly being skewed to the upside.
Natural gas continue to attract additional buying in response to the 20% rally during the past three weeks. Bullish bets on 4 Henry Hub deliverable contracts rose by 50% to an 18-month high last week.
Sugar buying continued with the net-long reaching a new record of almost 250,000 lots. Sugar has climbed by more than one-third since April and during this time most corrections have been shallow leaving bullish traders with no need to adjust positions. During the reporting week SBV6 traded within a 19 to 20 cents/lb range before attempting to break higher, a move that has so far proved unsuccessful.
Precious metals were in demand ahead of the UK referendum with the net-long in gold jumping by 29% to a near record of 240,862 lots. The buying, however, occurred before the extension to a near 2-year high last Thursday in the aftermath of the surprisingly dovish Federal Open Market Committee meeting.
The importance of the Brexit vote was also seen last Thursday following the temporary suspension of campaigning. Momentum players who bought the break above $1,303 cut positions once the market reversed and this helped trigger a $40 top to bottom reversal from where it slowly recovered on Friday.
WTI crude oil saw a big week of selling with the net-long falling 18% to a three-month low. During the week in question WTI crude rallied above $50/b. But the combination of emerging risk aversion, a stronger dollar and fading supply disruptions helped trigger profit taking and a second week of increased short selling.
The two-week surge in new short positions have raised the question whether a new bear cycle has begun. We view the risk of that being limited and instead see the market continuing to settle into a $45 to low $50s range during the coming weeks.
– Edited by Clare MacCarthy