The commodity markets have been unkind to lengthy solely funds and indexes in 2014. Most of the commodity markets have been sideways to decrease with a few exceptions like cocoa and cattle. This week, we’re specializing in the broader commodity panorama because of an article revealed on Bloomberg by Debarati Roy in which she acknowledged that open curiosity in gold had slumped to a 5 yr low. We’ve expanded on this subject to incorporate 27 common commodity markets and in contrast their present open curiosity to the place they stood each one month and one yr in the past respectively. The goal is to find out whether or not good cash is headed into or, out of the commodity markets in common in addition to what impact this will have on the markets going ahead.
Since the poke that received this ball rolling was the gold article, we’ll begin there. The gold market is up about 9% yr so far and about even over the final month. The main spark to this market was the Ukraine unrest in March, which spiked the market by about 4%. The vital level is that business merchants had been sellers into the value spike they usually have performed an excellent job of buying and selling the gold futures market’s sideways actions as they have been sturdy sellers above $1,350 and robust patrons under $1,260. The finest proof of that is that the whole business place has declined by greater than 80,000 contracts since this time final yr in spite of including round 35,000 contracts in the final month. We’ve additionally seen this in silver, copper and platinum. These markets all have considerably decrease participation charges than they did one yr in the past.
The first logical assumption follows that the danger premium is being taken out of the treasured metals markets. I consider a few of that is true however that would not account for the 20% decline in business merchants’ copper place since final month. This additionally wouldn’t account for the yr over yr declines in each the 30-year Bond and the Eurodollar. One ultimate notice when approaching participation charges from the worry angle is that the Vix futures have additionally seen declines of 10% and 20% over the final month and yr, respectively. Once I’d compiled my knowledge and noticed these preliminary outcomes, my subsequent thought was merely, “They’ve all just moved to cash.”
Turns out, I used to be mistaken once more. The U.S. Dollar Index has seen each month-to-month and yr over yr declines in the business dealer participation charge. In reality over the final month, the British Pound and the Japanese Yen are the solely currencies which have seen an uptick in business merchants’ positions. Both of those markets have seen a soar of greater than 20% in their internet business positions. Interestingly, the British Pound is constructive whereas the motion in the Yen is popping unfavourable. Meanwhile, the Euro FX has been the huge winner. It has practically doubled its business dealer open curiosity in the final month and practically quadrupled it over the final yr. It is sort of clear that no matter geopolitical occasions might occur, the business merchants are fairly darn sure that it should be a Euro pleasant world going ahead.
Furthermore, the danger premium we’re used to seeing given the present world political panorama in oil simply is not there. Renewed rigidity in the Middle-East because of ISIS in addition to the escalated battle between Israel and Palestine must be inflicting some ahead provide issues and but, oil is comfortably under $100 per barrel for mild candy West Texas Intermediate (WTI). Apparently oil refineries aren’t too frightened about procuring future inputs. We’ve seen their curiosity decline by greater than 25,000 contracts in the final month and greater than 170,000 contracts or 25% yr over yr.
Meanwhile, Ukraine unrest has pushed some curiosity again into wheat and pure fuel. Ukraine is the ninth largest wheat producing nation and wheat has attracted vital business curiosity and shifted their outlook to bullish starting in June. In reality, business merchants have been internet patrons in Chicago Board of Trade wheat futures in twelve out of the final 13 weeks totaling practically 90,000 contracts. Natural fuel has additionally attracted the identical kind of business curiosity as they have been internet patrons in sixteen out of the final seventeen weeks to the tune of 119,000 contracts. Putting these two figures inside the context of their open curiosity of 585,000 in wheat and 80,000 in pure fuel it turns into simpler to see how vital it’s to trace them as a bigger and bigger portion of the whole open curiosity turns into managed by a smaller variety of nicely knowledgeable individuals.
General curiosity in the commodity markets has subsided since the huge increase and bust of 2008. Keeping observe of the market’s gamers and their actions might help alert us to altering conditions inside the common ebb and move of the market’s typical meanderings. Tracking the depth of the business merchants’ commitments via measuring their present place sizes in opposition to the previous tells us how anxious they’re to get positions executed at present value ranges. These positions additionally assist to establish whether or not current market motion has the legs to proceed or if the transfer is solely a faux out.