10 July 2017 at 8:01 GMT
- Net long in commodities leapt 50%, driven by short-covering in energy and grains
- Investment metals remained pressured, with the gold net long cut in half
- Short-covering accounted for 159,000 of the 173,000-lot rise in the net long
- 12% crude oil rally triggered only a small reduction in gross-short positions in oil
- Wheat turned net long for first time in almost two years
Chicago Board of Trade trading floor. Photo: Shutterstock
By Ole Hansen
After two weeks of heavy selling, hedge funds turned buyers in the week ahead of the July 4th US holiday. A 50% increased in the net long was primarily driven by short-covering in energy and not least grains. Investment metals remained under pressure, with silver returning to neutral, while the gold net long was cut in half.
Some 159,000 lots of the 173,000-lot increase in the net long came from short-covering, while just 14,000 were new longs being initiated.
Precious metals remained under pressure, with the main catalyst for the recent weakness being the hawkish tilt adopted by the European Central Bank and Bank of England recently. Together with the US Federal Reserve, which has been tightening since December 2015, the addition of these two central banks turning hawkish helped send bond yields sharply higher and metals lower.
An 85% reduction in the silver net long saw it return to neutral, while bullish gold bets were cut in half.
A 12% crude oil rally that occurred during the reporting period only triggered a relatively small reduction in gross-short positions. And, with just a small addition of new longs, the net only rose by 16,000 lots, or 12%. It goes to show just how negative the current sentiment is and that it will take more data and news to stabilise the market.
The combination of reduced acreage for wheat and soybeans together with adverse weather helped trigger buying of 167,000 lots across the six grain and soy contracts tracked in this report. A record soybean short was reduced 41%, while wheat turned net long for the first time in almost two years.
Despite some mild short-covering in sugar, cocoa and coffee, the net short remained close to multi-year lows.
— Edited by John Acher
Ole Hansen is head of commodity strategy at Saxo Bank