Gold selling accelerated after the hawkish Fed rate hike
in mid-June. Photo: Shutterstock
By Ole Hansen
Hedge funds cut bullish exposure across 23 US-traded commodity futures and options by 26%, or 175,000 lots, during the week that ended June 20. This occurred during a week when continued selling, not least in oil, saw the Bloomberg Commodity Index hit a 14-month low.
With the exception of wheat, soybean oil and palladium, most other futures contracts were sold with the net short in several reaching the highest for at least 12 months.
The net long in WTI crude oil dropped by a significant 31% as short sellers went on the attack, while longs continued to capitulate. Rising supply, especially from Libya and Nigeria combined with rising US inventories further reduced the markets belief that Opec would successfully manage to balance the market.
However, with the net long and gross short both hitting 10-month highs, the risk is once again beginning to be skewed to the upside. Much still depends on the weekly US inventory report, which for the past three Wednesdays triggered major selloffs.
The producers' gross short dropped 8% last week to the lowest since December, a sign that current low prices are not attractive from a hedging perspective: a development that could see US production growth estimates for 2018 being revised lower.
Gold and silver selling accelerated after the hawkish Federal Open Market Committee rate hike on June 14. The silver net long was cut by 39% as longs were reduced and shorts were added.
Gold meanwhile has seen a repeat of what happened during the May correction. Once again, the reduction was purely driven by reductions in the net long, while no new short-selling was seen. We conclude that selling appetite and the belief that gold will go lower remains low at this stage.
Deteriorating crop conditions for CBOT wheat has seen the net short hit the lowest since November 2015.
The net short in Arabica Coffee hit a fresh record, while in sugar it reached a two-year low.
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