Article / 03 April 2018 at 8:07 GMT

COT: Gold rush and record Brent long on Iran supply threat

Head of Commodity Strategy / Saxo Bank
  • Hedge funds bought oil over possible return of Iran sanctions
  • Trade tensions and lower stocks hit industry-related metals
  • But the risk-off environment meant a rush into gold

By Ole Hansen

Hedge funds bought crude oil and products in the week to March 27 in response to a potential threat to supplies from a reintroduction of US sanctions against Iran. Overall, however, the total exposure across 24 major commodities futures was cut by 5% with heavy selling seen across the agriculture sector. The metal sector was mixed with selling of industrial related metals being more than offset by a rush of gold buying following the March 21 dovish US rate hike.

Speculative positioning in Commodities

The combined net-long in Brent and WTI crude oil reached an 8-week high at 1.1 million lots following a second week of strong buying. The potential threat to Iranian supplies from renewed US sanctions combined with a better term structure than WTI helped drive the Brent crude net-long to a new record of 616,000 lots.

The rush of speculative buying in past two weeks has left crude oil exposed to rising trade tensions and stock market weakness. Not least following the failure last week to break the January highs at $66 on CLc1 and $71.30 on LCOc1. 

Speculative positioning in Crude oil
A combination of a dovish US rate hike on March 21, global trade tensions, lower bond yields and a stronger yen all help trigger a gold rush during the reporting week to March 27. Speculators bought 51,000 lots, the most in a single week since June 2016. 

Silver, together with other industry-related metals, meanwhile, remained out of favour with funds maintaining a near record short position despite the white metal being struck in a relatively tight range around $16.5/oz.

COT on Gold and Silver

Following more than three months of almost non-stop selling the fund position in HG copper has returned to neutral for the first time since October 2016. Despite China growth worries, rising trade tensions and fund selling HG Copper has managed to stay within its established range between $2.95/lb and $3.3/lb. 
COT on HG Copper
The early March peak in the Bloomberg Grains index and subsequent sell-off finally caught up with traders last week. During the reporting week funds cut bullish bets in the three key crops by one-third or 130,000 lots with corn being the hardest hit.

Once again a net-long above 200,000 lots in both corn and soybeans and not least the speed with which these longs had been accumulated left both vulnerable to a sharp correction.

COT on grains
Thursday's acreage report from the US Department of Agriculture helped trigger a sharp reversal in both soybeans and corn. The lower than expected acreage that US farmers intend to cover with corn and soybeans this spring helped send both prices sharply higher. 

Gains in both, however, were reduced yesterday as attention instead turned to ample U.S. supplies of soybeans and rising trade tensions with top importer China. 
USDA Stocks and acreage report

Soft commodities were mixed with funds holding record short positions in sugar and Arabica Coffee and a net-long in cocoa which has reached a 19-month high above 40,000 lots. A net-long of this magnitude has proven difficult to sustain on several occasions during 2015 and 2016. 

COT on soft commodities

– Edited by Clare MacCarthy


Ole Hansen is head of commodity strategy at Saxo Bank


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COT on commodities in the week to March 27

Ole Hansen Ole Hansen
The dollar short against nine IMM currency futures stayed unchanged at a near 7-year high in the week to March 27. Buying of EUR, JPY and GBP were off-set by selling of AUD, NZD and not least CAD.
Ole Hansen Ole Hansen
COT on bonds, stocks and VIX futures in the week to March 27
Market Predator Market Predator
Interesting COT positioning on CAD. Currently Market little opposite.
Anatoly Vyacheslav Anatoly Vyacheslav
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