Precious metals analysis platform SchiffGold recently pointed out that the copper craze is caused by a combination of speculators and fundamental factors, and that in the short term, this carnival may not be over yet. Here's SchiffGold's opinion.

The copper market has gone crazy. Massive liquidations by speculators, an artificial intelligence bubble, supply chain crisis, and a renewable energy boom, combined with high global inflation, have all contributed to copper prices reaching an all-time high in recent times. As some factors gradually return to reality, the market may face major adjustments, but the most critical factor — uncontrolled inflation — may push copper prices higher in the long term.

The price of copper has risen enough to knock out a group of short sellers who are betting that the carnival is over. The ensuing bearish squeeze forced them to raise capital and buy more copper to close their positions, further boosting prices. In the short term, volatility is likely to continue, as speculators seeking short-term profits from the copper market are still active.

This is because the bullish market is too tempting, and there are sufficient fundamentals to support further growth in the medium and long term.

High inflation and supply shortages are combined with increased demand for electric vehicles, the explosion of renewable energy technology, and the artificial intelligence bubble. Copper prices will continue to rise even without the influx of speculative capital.

But some of the factors driving the copper market fervor will cool down: First, the popularity of the artificial intelligence market will return to reality. In the long run, some unrealistic renewable energy targets, such as “net zero emissions,” which are difficult to achieve, will be re-examined. Despite this, demand for copper remains, and the current tight supply and inflationary pressures will continue.

Although the current narrative is that US inflation is easing, any apparent easing in prices will be temporary. In order to avoid a banking and commercial real estate crisis, the Federal Reserve may eventually have to cut interest rates, which may trigger a new round of inflationary expansion.

The trillions of dollars in banknote printing effects of the pandemic cannot be eliminated in just a few years or a brief interest rate hike to 4% or 5%. Taming this beast requires much higher interest rates than the Federal Reserve dares to raise, because the Federal Reserve knows that industries that rely on loans, such as real estate, cannot survive at interest rates above 8%, 9%, or even 10%. The problem was also exacerbated by a long period of uncontrolled budget deficits, which led to the collapse of confidence in US Treasury bonds.

When the Federal Reserve finally cuts interest rates, Americans with depreciating dollars will face a sharp rise in gasoline and food prices, as well as a rise in commodities such as copper and other precious metals. Lower interest rates will also encourage over-indebted people to borrow rather than save. It will encourage Americans to borrow more money they shouldn't have to pay for expenses they can't afford, which will further drive up the prices of goods they no longer have enough money to buy.

All of this is dizzying enough, and could cause prices, including copper, to rise further in the next few years—even if the development of artificial intelligence and renewable energy is only half of what is currently predicted. That being said, broad renewable energy and artificial intelligence trends are a foregone conclusion, and large language models like ChatGPT require more electricity than average internet searches.

The copper supply problem may continue throughout this year, and if the Federal Reserve cuts interest rates, it will almost certainly lead to higher copper prices.