Commodities
The commodities sector is heading for a monthly loss of 4%, bringing the year-to-date gains in the BCOM Total Return index back to near zero. Traders and investors holding elevated longs have been hurt by the recent loss of risk appetite across equity markets, as well as the unwinding of short yen carry trades, with energy and industrial suffering the most amid ongoing concerns about demand in China. Meanwhile, rising rate cut expectations and multiple geopolitical concerns, including the US election, continue to underpin gold which trades higher on the month, albeit well below the recent record high near USD 2500.
In the latest reporting week to 23 July, the BCOM TR index fell 2%, led by industrial (-5.7%), and precious metals (-3.5%) as well as energy (-2.3%). Meanwhile, the agriculture sector was mixed with losses in softs being offset by gains in grains and livestock. Hedge funds, responding to this ongoing price weakness, made a fifth consecutive weekly reduction in the net longs held across 26 major commodity futures contracts, last week by 44% to a four-month low at 175k contracts.
The mentioned general loss of risk appetite this past month has hurt commodity investments, especially across those contracts that up until recently had seen strong demand, most notably the energy sector led by crude oil, and the metals where recent strong demand for silver and copper, and to some degree also gold left them all exposed as prices fell and the technical outlook deteriorated. Elsewhere, the grains sector remains heavily shorted amid pre-harvest selling pressure while weather-related concerns have supported long positions in cocoa and more recently also coffee.