Hedge Funds Are Suffering From Metal Fatigue
Commodity funds are going soft.
The investors who helped bid up the price of LME copper to a four-year high of $7,348 a metric ton last month are beating a path to the door. Holdings of investment funds in Chicago copper futures this month crashed to a net short position for the first time since the election of U.S. President Donald Trump in 2016, having hit a record net long of 125,376 contracts as recently as September.
Other hard commodities are showing similar weakness. In gold – whose characteristics are seen as so different to copper that the two are often played off against each other – the position of investment funds also slipped into net short territory last week, reversing a two-and-a-half year bull run. Platinum, which has been struggling for much of this year, hit its deepest net short in data going back to 2009.
It’s another picture entirely in softer products. Investment fund positioning in soybean meal, cocoa and cotton has been hovering close to multi-year highs, despite suffering some slight reversals in recent months. Soft red winter wheat – a perennially unloved crop for money managers – is also enjoying a rare spell outside of net-short territory.
Meanwhile in petroleum, positioning in Nymex WTI crude and RBOB gasoline contracts are only a sliver below the record highs hit earlier this year. Brent crude, gasoil and natural gas have suffered more dramatic falls in investor sentiment alongside the metals over the past two months, but still remain at net length that would have been inconceivable until a few years ago.
It’s not a universal pattern. Fuel oil – a heavier fraction from oil refineries that’s in trouble because of the impending clean-up of shipping emissions we wrote about last week – has flipped into sharply negative territory this year. Net shorts in soybeans and soybean oil offset the long position in soybean meal, though the total processing margins generated by the three U.S. soybean contracts are still at elevated levels....MUCH MORE