COT Update, Gold Traders Increase Positions, Corn Traders Weigh Late Planting

Gold futures large speculators increase their positions 4:1 on the long side
Coffee market’s brief rally has led to considerable producer selling
Corn traders weigh latest planting in history against declining demand
COT Update

COT Update

Futures Market Commentary:

 

Gold – Last week’s rally in the gold market emboldened the large speculators to increase their positions to nearly 4:1 on the long side by adding 120k new long positions over the last three weeks. This is the most bullish position the speculators have attained since March of 2018. Gold made the high for 2018 at $1,370 (GCJ18) in January then, failed miserably after a second speculative charge to $1,350(GCM18), in April. Long-term back-adjusted charts show considerable resistance in the $1,410 to $1,425 area. 

The gold miners have taken a different approach to this rally. They’ve locked in future deliveries at a pace not seen since July of 2016 when the August contract peaked at $1,377. 

Finally, much of last week’s rally was due to weakness in the US Dollar. We’ve been forecasting a weaker Dollar and the Dollar Index futures could fall another three handles. However, we think the more timely trade will be betting against an overbought gold market in the short-term as speculative buying runs out, and miners’ forward selling takes hold. Stay tuned for trading signals.

Commodity-based ETF traders can look at inverse funds like “DGZ” or a leveraged fund like, “GLL.” 
 

Coffee – The coffee market’s brief rally has led to considerable producer selling. Forward selling by growers has pushed their net position a new low for the last twelve months. This eclipsed their total selling from last June when coffee prices were more than one-third higher. Producers’ willingness to lock in forward sales, now at lower prices, suggests the market could fall much further. 

Corn – Corn traders are weighing the consequences of the latest start in history against declining demand. Corn prices have rallied by a third since the mid-May low. 

We had this to say on April 22nd, ahead of the weather concerns and direct threats to our commodity trade with Mexico.

“The corn market has been stuck in roughly a 10% range as it grinds lower. The speculative total position has doubled in size on the short side within a $.20 range. This feels a bit ambitious on the speculators’ behalf, and we’re left wondering where additional selling might be found. Therefore, while I expect the corn market to make new lows, I believe they will be short-lived. Look for a buying opportunity ahead of the typical mid-May low and hold on for weather-related planting concern rally.”

Speculative traders have purchased nearly 480k contracts in the last six weeks. This covered their short position, and shifted the speculative net position from short 1.56:1 on May 3rd to now long, 2.3:1, six weeks later. Meanwhile, the commercial corn producers have just taken their net short to a new 52-week low. The last time we saw positions flip this violently both in magnitude and volume was June – July of 2015. 

Those who’ve contracted for future delivery still feel pretty certain in their abilities. I’m not sure if this will come from their fields or, they’ve made arrangements to fulfill their obligations from another source. Either way, we’ll side with those who have their hands in the ground and look for short selling opportunities, accordingly.


 

About the Author

Andy Waldock, owner of the brokerage firm Commodity & Derivative Advisors and the subscription service COTSignals.com, is a third generation commodity trader with over 25 years of experience on all of the main U.S. exchanges.