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If commodity prices are the canaries in the economic coalmine, it's because they're close to the coalface.

Commodities are the fuel of the economy. You can't make a car without steel, you can't drive it without oil, and you can't phone home from a traffic jam without the rare minerals in your mobile.

Commodity prices generally reflect supply and demand. Speculation and irrationality can play a role, but with the exception of precious metals, the scale of consumption and the cost of their storage (or their perishability) mean they can't buck the market for long. This makes commodities ideal runes for reading the state of the world economy.

There is however one other influence on commodity prices. Commodities are typically priced in US dollars. If the dollar falls, you need more to buy your commodity; in other words, the price of the commodity will rise. Dollar fluctuations -- or the expectation of future fluctuations -- can therefore be a big factor in commodity pricing.

With that in mind, let's see what four key commodities are saying about the economic outlook.

Crude Oil

• Price: $70.89 per barrel
• Change since January 1st: +54%
• Change over 12 months: -49%

The oil price reached an eight-month high on Monday, when US Crude hit $72 a barrel. The price has more than doubled since the $32 lows of December 2008 -- still well down on last July's $147 peak.

The OPEC nations that pump one third of the world's oil supply cut production in 2008, citing falling demand and obviously smarting from lower prices.

With cheaper fuel about the only good news last year, OPEC was pilloried. But BP (LSE: BP) revealed recently that global oil consumption did indeed fall in 2008 -- for the first time since 1993.

Oil stocks are currently high, and the International Energy Agency has cut its forecast for demand growth to an extra 540,000 barrels per day, averaged until 2014. As recently as December it was predicting an extra one million barrels a day in growth.

Given supply exceeds current demand, the rising oil price is seemingly being partly driven by speculation about the US dollar and inflation, as well as hopes the economy will bounce back faster than expected.

Takeaway: With the oil price increasing in the face of demand downgrades, investors seem to be betting on a surprise return to growth and, perhaps, a declining dollar.

Gold

• Price: $931per troy ounce
• Change since January 1st: +6%
• Change over 12 months: +1%

The flat gold price may surprise those who look to the precious metal to outperform in a crisis. But given the FTSE 100 is down 25% and other commodities down 50% over the year, its reputation is intact.

Gold hit $1,000 an ounce in March 2008, and outrageous predictions were made about future rises. But the gold price actually fell for much of 2008 -- particularly as the dollar strengthened in the financial panic -- before climbing back to near where it started.

Who is buying gold? According to the World Gold Council, demand in the first three months of 2009 was up 38% on a year ago. But jewellery demand fell 24% and industrial demand dropped 31%. Crucially, the appetite of investors increased by 248% to make up half the total demand.

Takeaway: The gold price is being driven by investors (including governments) who fear the financial crisis isn't over or who want gold for future diversification.

Copper

• Price: $2.29 per pound
• Change since January 1st: +57%
• Change over 12 months: - 41%

Forget about greenshoots -- look for orange ones. Economists see copper, together with other industrial metals, is a key indicator of economy activity. An economic recovery means more demand for raw materials, which pushes their prices up.

The fall and rise of copper has been spectacular. Copper traded at just over $4 per pound in July 2008, then fell to around $1.30 by December. It has since surged to around $2.30.

How can we tell whether the rising copper price is due to optimism over the economy or fears of inflation?

The difference between gold and copper may be key. Since 1 January, copper has risen 57%. In comparison, gold rose just 6%. If inflation was the cause, wouldn't both metals rise?

Some suggest Chinese stockpiling is a factor. I'm sceptical. Chinese buying might have put a floor under the price when copper was very cheap, but copper has risen strongly for six months now -- hardly a blip.

Takeaway: The rising copper price suggests a global recovery is underway.

Corn (Paris: XD0023663632 - news) per bushel

• Price: $3.48
• Change since January 1st: -20%
• Change over 12 months: -52%

Headlines about tortilla riots seem a long time ago now. Most of the 'soft commodities' like corn and wheat peaked in 2008, and remain well down today.

Soft commodities have fallen further in 2009 even as metal prices surge, adding more credibility to the theory that prices of the latter are being driven by an industrial recovery rather than inflation or dollar fears.

White sugar is a notable exception to the falls. It's up 23% over 12 months. This highlights a problem with treating soft commodities as a group. Individual crops can be affected by everything from weather to speculation to consumer substitution (eating more rice because wheat is expensive, say).

Farmers can also respond relatively quickly to changing demand. This year American farmers have planted the second largest acreage of corn since 1946, causing prices to soften. In contrast, a mine takes years to bring into operation.

It's possible dietary habits have changed due to global recession, weakening prices. People may be eating less meat, so less animal feed is required. But I wonder if the 2007-2008 soft commodity price surge was in retrospect just another bubble inflated by that era's cheap money.

Takeaway: Sweet and sour pork with sticky rice please! There's not much for investors to chew on here.