07 August 2017 at 10:16 GMT
- Funds almost tripled bullish commodity bets over past 5 weeks
- Demand increased for all three sectors — farm, metals and energy commodities
- Oil and gold shorts squeezed
- Buying of crude, products, metals and softs more than offset selling of crops
- Crude oil has recovered in recent weeks, after another failed short-selling cycle
Crude oil has recovered strongly in recent weeks, and another
short-selling cycle was abandoned. Photo: Shutterstock
By Ole Hansen
Hedge funds have almost tripled their bullish commodity bets during the past five weeks. All three sectors — agriculture, energy and metals — have seen renewed demand during this period as the US dollar weakened. Oil and gold shorts have been squeezed once again, while the recent pop in copper prices helped trigger a record net long.
Buying of crude oil, products, metals and soft commodities more than offset a reduction of positions in key crops.
Crude oil has recovered strongly in recent weeks, and a third consecutive failed short-selling cycle was abandoned. The cycle of lower price lows witnessed since the first-quarter peak was broken towards the end of July, and that resulted in renewed buying interest. This led to an 18% jump in the net long last week to 282,000 lots, a 15-week high.
Gold's July surge on a weaker dollar and a struggling Trump White House has seen the gross short collapse during the past couple of weeks. As a result, the net long has surged the most on record during this time, reaching 123,000 lots last week, close to the average seen this past year.
As usual, a rapid reversal or build-up in positioning requires continued support from the market, and that was put in doubt on Friday after the strong US jobs report. So far, however, the market is holding up reasonably well, with support below at $1,247/oz yet to be challenged.
High-grade copper's recent rally to a fresh post-November high in response to improved Chinese economic data and the weaker dollar led to a surge in demand from macro and momentum funds. Last week the net long jumped 22% and breached 100,000 lots only for the second time since 2007.
The grain sector has seen a sharp reversal of the early July surge, with the Bloomberg Commodity Grain index giving up all the gains seen during that time. This left funds holding unwanted longs after a three-week change in the wheat, corn and soybeans exposure from a 44,000 net short to a 246,000 net long in the week to July 25. As a result, these three major crops were sold despite continued support from dry weather conditions and the weaker dollar.
— Edited by John Acher
Ole Hansen is head of commodity strategy at Saxo Bank