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The Copper Bull: Speculation Vs. Fundamentals

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While I believe there will be major corrections as some of these factors come back down to earth, the most important one — out-of-control inflation — will ultimately send copper even higher in the longer-term.

Yes, the market has taken on more froth than a Starbucks drink. Copper went high enough to wreck a batch of short sellers who betted that the party was over. The resulting short squeeze forced them to pony up, buying more paper copper to cover their positions and pushing prices even higher. Expect more volatility in the near-term, as the crowd of speculators looking to snatch short-term profits from copper are still here and will keep riding the wave.

That's because the bullish action has been too juicy to resist, and it has enough fundamentals to support more upward action in the medium and longer-term. 

High inflation and a supply shortage are conspiring with increased demand for electric vehicles, a boom in renewable energy tech, and an AI bubble to keep the price going up even without the flood of speculative money.

I suspect a cooldown in a few factors driving the copper frenzy: first, I expect the AI market coming come back down to earth. In the longer-term, I also expect practical revisions of renewable energy targets like the impossible "Net Zero," which are more about making politicians look good in the short-term than being pragmatic and achievable long-term goals. But the demand will still be there, and the current supply squeeze and inflationary pressures are here to stay.

If you're a buyer, waves of speculation along the way can provide buying opportunities for physical copper in the form of epic volatility and dramatic dips.

While the current narrative is that inflation is easing, any apparent relief from higher prices will be temporary. To avoid a banking and commercial real estate crisis, the Fed will have no choice but to cut interest rates at some point. This will invite a new torrent of inflationary expansion as the Fed ignores the pressure cooker that its policies helped create.