Hedge funds have increased their holdings in crude oil while substantially reducing their long positions in gold. In the week ending February 3, money managers raised their net long positions in Brent crude to the highest level in nearly ten months. Over the same period, net long positions in gold fell to a 15-week low. This shift from gold to oil reflects subtle changes in market risk appetite.

Following a sell-off in the SaaS sector that triggered heightened volatility across asset classes, gold remains more than 11% below its January record high, while crude oil has climbed over 13% from its low for the year.

Ongoing tensions between the U.S. and Iran have prompted investors to increase bullish bets on crude oil for four consecutive weeks, hedging against potential supply disruptions. Meanwhile, after a sharp rally in January that repeatedly pushed gold to new all-time highs, the metal suffered its largest single-day decline in over a decade last week, forcing hedge funds to significantly reduce their positions.

The oil options market indicates deepening bullish sentiment. The premium of WTI call options over put options reached its highest level since 2022 this week, and a major oil-linked exchange-traded product recorded its largest inflow since 2020.

Money managers increased their net long positions in Brent crude by 31,332 contracts to 278,249 in the week ending February 3. Data from ICE Futures Europe shows this is the highest level in nearly ten months. CFTC data also reveals that bullish bets on WTI crude rose to a six-month high.

Persistent tensions between the U.S. and Iran are the primary driver of this trend. A recent maritime and aerial standoff between the two nations briefly reactivated risk premiums. Although these premiums eventually eased as nuclear negotiation plans took shape, traders continue to hedge against potential supply disruptions from the OPEC member.

In sharp contrast, hedge funds and other large speculators cut their net long positions in gold by 23% to 93,438 contracts, the lowest level since last October. Gold and silver’s record-breaking rally last month came to an abrupt halt last weekend, with many viewing the gains as excessive and too rapid.

On January 30, gold experienced its largest single-day drop since 2013 and has since struggled to stabilize amid intense volatility. This sharp correction prompted money managers to quickly adjust their positions, significantly reducing bullish bets on the precious metal.