2 June 2006
A Closer Look at Copper "Speculative Buying" in Copper
The Salamone Stance: A Closer Look at "Speculative Buying" in Copper: "A popular explanation to a rise in commodity prices is 'speculative buying.' Usually, it is the hedge-fund world that is viewed as the speculative buyers. While speculative activity among the hedge-fund community can drive price behavior, I think it makes sense to confirm whether or not it is truly speculative buying that is driving prices. One resource for doing this is to check in on the Commitment of Traders Report (CoT), which is published weekly by the Commodity Futures Trading Commission (CFTC). The data for this report is available in our Commodity Center. The CoT report is broken down by three types of traders: Large Speculators, Small Traders, and Commercial Hedgers. Hedge fund positions are reported within the Large Speculator category. With that being said, it is hard for me to believe that copper prices are being driven by the hedge-fund community. In fact, note in the graph below that Large Speculators have liquidated positions since March 2005. Furthermore, as early as February 2006, this group has been net short from time to time, even as copper spiked higher. Hedge fund speculation might have helped drive the rally in copper futures in 2003, but I have my doubts as to 2004-2006. And to the degree that some hedge funds have benefited from the copper rally, I would think that some in the hedge-fund community have been badly hurt by the advance."