Today, the price of oil and the cost of natural gas are making headlines. Governments worried about the inflationary effects of spiraling energy costs are nervously talking about conservation and “made in North America” energy solutions. Gold has been making a resurgence lately as a commodity to be prized and possessed. The U.S. dollar is under pressure and some market watchers are calling for a further weakening of the dollar. Everywhere we look, economists are predicting better times and yet the price of tangible assets (base metals, precious metals and energy) appears to be going up while intangible assets such as the dollar are heading down.

Economists look carefully toward energy prices, wary that a further spike in energy prices could dampen the economic recovery that is underway. Natural gas basins in North America are mature and are experiencing unprecedented declines in production. The United States is looking to liquefied natural gas as a solution to their growing energy needs in the face of dwindling North American supply. These structural changes have caused prices for natural gas to spike setting off alarm bells for consumers and governments. Offshore oil drilling in areas such as the Gulf of Mexico and the East Coast of Canada once considered promising have, lately, been disappointing. Increasingly, world oil production is becoming reliant on areas of the world that have a long history of instability. The price of oil reflects not only the fundamentals of supply and demand, but also this new geopolitical reality.

Base metals, those commodities used in the manufacturing process, have been on a tear recently. Increasing base metal prices often signal growing industrial demand. Aluminum is used in the aerospace industry, copper in the manufacturing and construction industries and nickel in the production of stainless steel. But the center of demand for these base metal commodities has shifted from North America to Asia. Asia has increasingly become the important driver of base metal usage and is displacing the Americas as the source of primary demand. Asia now accounts for 47% of the worldwide copper usage up from 39% while usage in the Americas as a percentage of the worldwide total has dropped to 22% from 28%. In 2002, China surpassed the U.S. as the world’s biggest consumer of copper.

It wasn’t all that long ago, in the go-go nineties, that commodity prices were thought to be going nowhere as the “new economy” boasted a world of strong productivity growth coupled with low inflation. The very word “commodity” used to conjure up images of products and services that were undifferentiated and therefore doomed to lower and lower margins and prices. Commodity pricing has, historically, been cyclical. At the bottom of the cycle when inventories are low, it takes only a modest increase in demand before commodity prices shoot up. As commodity prices become elevated, marginal production comes on to the market and helps distort the supply/demand balance and causes prices to start heading lower.

Report on Money examines the world of commodities through our series of special reports and newsletters and tells you what you need to know about commodity prices and their likely impact on your investments, as well as what commodity prices might be signaling about the future direction of the economy. To find out more about Report on Money’s special reports on commodities click here.