The world is screaming for copper. Demand from China, the U.S. and Europe is pushing prices to all-time highs. London copper traded at $10,000 a metric ton. On the New York Mercantile Exchange, copper hit $.4.58 a pound, as reported in the Wall Street Journal.

Traders are looking for "five dollar copper," which would push London's price to $11,000 per metric ton. Goldman Sachs (GS) forecasts that copper will average $10,230 a metric ton in 2011, up 15%. It warned that new mine capacity will not come to market for at least two years.

First off we should distinguish between precious metals and base metals. Copper and zinc fall in the category of base metals. Base metals are used in construction and products. So copper and zinc are more a supply-and-demand play than precious metals. The prices of base metals move almost in lock-step to basic supply.

Goldman Sachs Group (GS) has an international division that specializes in commodities. Much of the data comes from London, which is a hub for commodities trading. The London Metals Exchange (LME) is where this trading takes place. Traders like Goldman can monitor trading and inventories at the LME and run estimates of supply and demand based on trading activity, both on and off exchanges.

Chinese buying drove copper prices to a 16-month high. Three-month copper traded at $7,618 per metric ton, up $133.

Here's an interesting dynamic. Copper prices in Shanghai were higher than those on the LME. This allows traders to import copper at a profit. This helps to explain why there was such strong buying on the LME.

Copper was able to ignore the settlement of a strike at a Chilean copper mine.

Let's look at the explosive jump in the price of copper, and then examine the underlying factors that could signal the beginning of a sell off:

• From December 24, 2008 to April 3, 2009, copper rallied 51%.
• Global stockpiles tripled to about 567,000 tons since July.
• Hedge funds and other large speculators increased their net short positions in New York copper futures by .6% in the week ended March 31.
• Prices have been rising because of China's buying for stockpiles.
• Beijing's State Reserve Bureau (SRB) took advantage of the declines in 2008 and agreed to buy 300,000 to 400,000 tons. China may increase its stockpile to 936,000 tons in 2009.
• Jose Pablo Arellana, CEO of Santiago, Chile-based Codeleo, the world's biggest copper miner, said the December lows are "in the past" and Chinese demand rebounds.
• The 82-member Bloomberg world mining index led by BHP Billiton Ltd (NYSE: BHP) plunged 56% in the twelve months through April 3.
• Peter Sorrento, who manages Huntington Asset Advisor, said: "we think we could see a pretty significant sell off in the next quarter."
• A Bloomberg survey of 13 analysts estimates that copper will average $3,000.00 a ton this quarter, 21% below the April 3 closing price of $4,301.00 per ton.
• Copper and home building tend to go together. With confidence among U.S. home builders near record lows in March, there isn't much to spur the copper market much further to the upside.