The Copper Bull: Specification Vs. Fundamentals

Via SchiffGold.com,

Copper has gone mad: Liquidated shorts from a level of speculators, an AI bubble, a supply crisis, and a renewable energy crisis have all combined with advanced global inflation to late send it to historical all-time highs. While I believe there will be major corrections as any of these producers come back to earth, the most crucial 1 — out-of-control inflation — will eventual send copper even higher in the longer-term.

Yes, the marketplace has taken on more froth than a Starbucks drink. Copper went advanced adequate to wreck a batch of short sellers who betted that the organization was over. The resulting short stretched them to pony up, buying more paper copper to cover their positions and pushing prices even higher. anticipate more flexibility in the near-term, as the crowd of speculators looking to slip short-term profits from copper are inactive here and will keep riding the wave.

Copper Futures (USD/lb) 6-Month

Source: Bloomberg

That’s due to the fact that the bullish action has been besides juicy to resist, and it has adequate fundamentals to support more upward action in the average and longer-term.

High inflation and a supply shortage are connecting with increased request for electrical vehicles, a boom in renewable energy tech, and an AI bubble to keep the price going up even without the level of circumstantial money.

I propose a cooldown in a fewer factors driving the copper frenzy: first, I anticipate the AI marketplace coming come back to earth. In the lounge-term, I besides anticipate applicable revisions of renewable energy targets like the impossible “Net Zero,” which are more about making policyians look good in the short-term than being pragmatic and achievable long-term goals. But the request will inactive be there, and the current supply compression and inflationary presses are here to stay.

If you’re a buyer, waves of specification along the way can supply buying opportunities for physical copper in the form of epic flexibility and dramatic dips.

While the current communicative is that inflation is easing, any applicable relief from higher prices will be temporal. To avoid a banking and commercial real property crisis, the Fed will have no choice but to cut interest rates at any point. This will invitation a fresh torrent of inflationary expansion as the Fed ignores the force cooker that its policies helped create.

You can’t undo the effects of trillions’ worth of COVID money printing in just a fewer years or by briefing Hiking interest rates to 4% or 5%. Taming that beat would require interest rates to be much higher than the Fed would always rise them, as it knows that loan-dependent industries like real property can’t manage with rates upwards of 8, 9, even 10%. The problem is warped by sustained out-of-control budget defaults that are causing a trust collapse in US Treasury bonds — in the “full religion and credit” of the US government.

When the Fed yet cuts rates, Americans spend devalued dollars will get slammed with advanced prices for gas and food, along with surging commodities like copper and precious metals. Lower rates will besides incentivize borrowing over saving for an already over-indebted population. It will engourage Americans to get in even more over their heads with loans they shouldn’t get to finance increases they can’t afford, adding more upward price force for the goods they valids Don’t have adequate money to buy.

It’s adequate to make your head spin, and it can only possible consequence in higher prices in the coming years — including for copper — even if the AI and renewables projections end up being only half what is presently predicted. That said, the broadcaster renewable energy and AI trends are here to stay, and LLMs like ChatGPT require a lot more power than the internet’s current run-of-the-mill web searches:

A ChatGPT search requirements 10x as much power as a conventional Google search pic.twitter.com/khdSbvxsOH

— zerohedge (@zerohedge) May 19, 2024

Copper supply will besides proceed through this year — and if you zoom out even more, curious rate cuts will all but warrant advanced prices even as short-term, specification-fueled springs and drawdowns origin the marketplace to overheat.