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Ole Hansen
While WTI crude has continued to be on the defensive, Brent has been trading upwards with potentially the best month since May 2009. Natural gas has also had two stories to tell this week - in the US it's fallen 9% while UK gas is up around 5%. Saxo's Ole Hansen looks at this week's divergence plus gold.
Article / 31 October 2011 at 9:28 GMT

Hedge funds still playing catch up boosting longs by 8.7 percent

Head of Commodity Strategy / Saxo Bank
Denmark

Hedge funds and large investors continued to rebuild long positions through futures and options with the latest data from the CFTC showing an 8.7 percent increase to 1,077,000 lots on the 25 commodities we track. Speculators have returned with a vengeance over the last three weeks after having almost halved their long exposure during the September and early October rout.

Long positions were rebuilt across all sectors as the dollar continued to weaken ahead and after the EU leaders announced new initiatives to contain the debt crisis.

Energy: speculators increased their exposure to the energy sector by 13 percent primarily on increases in gasoline and natural gas. WTI crude had another good week and hedge funds added 6 percent  to 237k lots, the highest level in six weeks. Some of the increased long positions in WTI have most likely come from increased speculation that the discount to Brent crude will continue to shrink.

Metals: Copper shorts were nearly halved and would most likely have reached neutral by the end of last week on the back of a 20 percent rally in just a matter of days. Gold and silver longs continue to be rebuilt but at a very slow pace indicating some reluctance to jump back in.

Agricultural markets followed the same pattern with corn longs rising by 15 percent while CBOT wheat shorts were trimmed by 14 percent.


Background information: The Commitments of Traders is a report issued by the Commodity Futures Trading Commission every Friday with data from the previous Tuesday. It comprises the holdings of participants in various U.S. futures markets split into "commercial" and "non commercial" holdings. The non commercial or speculative holding are typically institutional investors such as hedge funds and CTAs. Analysts and investors follow changes in these positions because such transactions can reflect an expectation of a change in prices.

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