This report summarizes hedge funds’ futures and moves in commodities, currencies, and financials until Tuesday, October 19. A week in which risk appetite returned with a vengeance, sending the S&P 500 up 4% and the VIX index down 20-month low. The dollar fell against a basket of major currencies. At the same time, bond rates rose, headed by rising breakeven yields, as a more sustained inflation outlook gained traction. Except for softs and natural gas, gains in most commodities elicited a mixed reaction from hedge funds. HG Copper’s 8.7 percent jump helped fuel a 52 percent gain in the net long, while Silver’s 6.1 percent surge helped support a tripling of the net long to 14.6k lots.
Apart from a 15% drop in the notoriously volatile natural gas contract, the reaction throughout the energy sector was mixed, with gas oil and gasoline in demand. In contrast, the combined crude oil net long saw a decrease for a second week as WTI purchasing offset by Brent selling. During this time, the WTI long position has climbed by 31k lots. Meanwhile, the Brent long position has decreased by 56k lots.
In agriculture, strong selling of soybeans resumed, with the net long falling to 18k lots, a level last seen 16 months ago, just before China began squeezing supplies. Overall, the net long in maize, soybeans, and wheat fell to 220k lots, a 61 percent decrease from the April record high. Heavy selling in sugar and cocoa also contributed to a substantial fall in bullish bets. At the same time, a 4% correction in coffee only reduced the net long by 1%.
Crude oil prices rose further in Asia, with Brent crude approaching the 2018 high of $86.75 and WTI trading at a new seven-year high. The market remains bid, with OPEC+ continuing its cautious production increase strategy, citing the pandemic’s continued threat to demand. As a result, they are disregarding the looming energy crisis, which, according to projections, might result in one million barrels of additional oil consumption this winter. This week focuses on falling US stock levels and China, dealing with new COVID-19 outbreaks after infections expanded to 11 provinces.
Gold and Silver
Gold and Silver’s recent strong run of gains suffered a momentary setback on Friday due to a quick bout of the taper tantrum in response to Fed Chair Powell’s comments. At the same time, he downplayed the risk of boosting interest rates while simultaneously voicing alarm about stubbornly high inflation. Focus on the dollar, which continues to lose steam and bond yields. The recent yield rise has been driven primarily by a resumption of inflation, putting real gains deep in negative territory. Resistance is at $1814, and the big one is at $1835.