Buyers return to crude as gold stays strong; Yen buying hits historic levels

(MENAFN- Matrix PR) Report by Ole Hansen, Head of commodities Strategy, Saxo Bank

Key Points:

- Positions and changes made by speculators in commodities, Forex and bonds in the week of August 13
- Hedge funds turned selective buyers of key commodities following the early August deleveraging crash
- In demand were crude oil and, not least, gold, ahead of last week's jump to a fresh record high
- The grains sector remains heavily shorted with an ample supply of soybeans, the latest driver
- The speculative IMM yen position has undergone a historic turnaround

Commodities:

Global financial markets have made a strong recovery, with early August's market turmoil now a distant memory. This turnaround comes after better-than-expected US economic data reduced fears of a severe downturn in the world's largest economy, thereby easing pressure on the Federal Open Market Committee (FOMC) to implement deep interest rate cuts. However, China, the world's top consumer of commodities, remains weak due to a persistent property slump, rising unemployment, and weak consumption.

These developments should prompt caution regarding the commodities sector from a demand perspective. However, the supply side of key commodities might find support from geopolitical events, adverse weather, industrial action, and the weakest hedge fund positioning in more than a decade, which could spur fresh demand and technical-driven support.

Focusing on the latter, hedge funds returned as buyers in the week to August 13 after cutting their net position across 26 major futures contracts to the first net short in more than a decade. The reporting week saw the Bloomberg Commodity Total Return index trade 1.6% higher with strong gains across energy, led by crude oil and natural gas, and precious metals more than offsetting another slump in grains after the US government lifted their production forecasts, especially for soybeans.

Hedge funds returned to Brent with the net long rising 44,000 (174%) from a record low in the previous week, while bullish gold bets rose to near a 4-1/2 year high at 220,000 ahead of Friday’s jump to a fresh record high, while the silver long remained weak at just 24,000. Copper length stayed weak ahead of the strike-led bounce that followed later in the week.

Forex:

Six weeks of yen buying saw speculative traders turn bullish for the first time since 2021, and the change during this short time frame from a record 184,000 contract short to 23,000 net long shows just how aggressive the deleveraging activity has been, not least considering the yen only strengthened by 6.5% during that time. Overall, the gross USD long against eight IMM futures held steady at around USD 11 billion, with the mentioned buying of yen offset by the selling of EUR, especially GBP. Elsewhere, the MXN long, a recent favourite carry trade against the yen, saw a 23% reduction in the net long.

Energy

Buyers returned to crude oil following a slump in the previous weeks that saw the Brent net long slump to a record low. The three fuel contracts received a boost, primarily from short covering, while the natural gas rally received a muted response from speculators.

Metals

Gold’s resilience remained clear, with buyers adding back what they sold in the previous three weeks. The net long reached a nearly 4-1/2 year at 22 million ounces ahead of Friday’s surge to USD 2,500. Small net longs in silver and copper help explain their strong performances last week.

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