CHARTS: Hedge funds turn commodity bears at record pace

Traders work the floor at Bovespa Commodities Exchange in Brazil in 2004. Image: Alf Ribeiro

Anticipation that the US Federal Reserve will raise rates faster than previously expected and impatience with underlying price performance prompted large futures speculators or “managed money” investors such as hedge funds to dramatically cut bullish bets across the commodity sector.

Hedge funds turn commodity bears at record pace


Ole Hansen, chief of commodity strategy as Denmark’s Saxo Bank, in a research note on Monday points out according to CFTC weekly Commitment of Traders data released on Friday hedge funds dumped a total of 370,000 lots of futures and options across the 24 commodities tracked.

It was the highest number on record with US crude oil and precious metals coming in for particular punishment:

We have for some time been worried that the gap between positioning and the actual performance of key commodities did not stack up. The Bloomberg Commodity index, which represents a basket of commodities in energy, metals and grains have traded sideways for the past 11 months while bullish bets increased at a rapid pace, not least in crude oil.

Hedge funds turn commodity bears at record pace


In gold, net long positioning – bets that gold will be more expensive in future – dropped by 47% or 4.4 million ounces to just below 5 million ounces in the week to 14 March. It’s the most bearish positioning since the beginning of the year and the biggest reduction since 2015 according to Saxo. And it compares to last July’s all-time record of nearly 29 million ounces when gold was hitting its 2016 peak.

The dovish statement by the Federal Reserve accompanying its rate hike announcement on Wednesday (only the third move higher in a decade) wrong-footed managed money which had to scramble to cover short positions. That gave gold a $30 an ounce lift with the metal trading at a two-week high of $1,233.80 an ounce late on Monday.

Hansen says the gross-long dropping to a 13-month low of 12 million ounces “has opened up for a renewed bullish bias as the weaker dollar and geopolitical risk offset the potential for US rates rising further.”

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