08 January 2018 at 8:42 GMT
- Funds stock up on commodities in week to January 2
- Metals see strong demand, gold and silver lead the pack
- 'Price behavior of natural gas continues to frustrate traders'
Hopes for a winter rally in natural gas are fading. Photo: Shutterstock
By Ole Hansen
Hedge funds continued their broad-based buying of commodities into the new year. During the week ending January 2. Only five out of 26 futures tracked in this were sold with the metals sector, led by gold and silver, seeing particularly strong demand.
The oil net-long reached a new record while natural gas buying surged as US temperatures slumped.
The metal sector, led by gold and silver, saw strong demand as the yellow metal continued its record-breaking run of consecutive gains. This comes in the wake of the December 13 rate hike and the US tax deal, which helped weaken the dollar while raising inflation concerns.
For the second time within the last six months, funds only managed to hold onto a silver net-short for a couple of weeks. Last week’s buying of 23,000 lots was the biggest since May 2015.
The price behavior of natural gas continues to frustrate traders. Colder than normal weather across the US helped trigger a surge in the price which resulted in the net-long doubling up until last Tuesday. However, record production and signs that the cold may not last long enough to materially impact storage levels helped send the price sharply lower ahead of the weekend with funds once again reducing hopes of a winter rally.
While the oil price moved higher in response to a potential Iranian supply threat funds only made a small addition of longs to an already bulging and record long of more than one million lots or one billion barrels.
Funds boosted bullish bets in palladium to a fresh record of 27,000 lots as the ongoing momentum took the price to an all-time high amid signs of strong demand and tight supplies. The only worry right now is the extend of the position as it equates to more than five days of the average futures volume.
Coffee and sugar are both threatening to break higher supported short-covering, particularly sugar which saw a 50% reduction.
— Edited by Michael McKenna
Ole Hansen is head of commodity strategy at Saxo Bank