Although it cost Cao Yajie 5000 yuan, or more than half of her monthly pay, to buy a commemorative gold coin, she still found it a worthwhile investment.

"Money is losing its value everyday, so I buy some gold to preserve my assets," said the 47-year-old, who is a frequent shopper at the Beijing Caishikou Gold Store, a well-known gold seller in China.

"More and more people buy gold, as a hard currency, to preserve value despite its surging prices. It becomes more prevalent when inflation fears are rising," said Wang Chunli, general manager of the store, whose sales revenue surged to a record 2.3 billion yuan (338 million U.S. dollars) in the first five months.

A buying spree is not only seen in gold, but across the commodity list from crude oil to farm produce, with many hitting monthly-rise records. Asset prices are rising too.

The "Green shoots" in the economic recovery, like a soothing mantra, may help fan the commodity bulls, but Zhuang Jian, a senior economist with the Asian Development Bank told Xinhua Monday, that "A weak U.S. dollar and speculation are the main culprits for the price spike,"

As the world economy is on the way to recovery, inflation fears will grow, as ample liquidity allow investors to pull back on the U.S. dollar and bet on more profitable commodity, he said.

Economists said if the monetary authorities can not soak up liquidity before inflation takes hold, a new bubble will bulk on the heels of massive cheap money that flow out of the banks.

Commodity upbeat

Last month, the Reuters-Jefferies CRB index, a global commodities benchmark which covered 19 commodities, rose 14 percent to end at 253.05 points on May 29, the second biggest monthly increase since it was created in 1957.

Oil prices touched 70.32 U.S. dollars a barrel on June 5, the highest level since Oct. 5, after rising 30 percent in May alone.

U.S. investment bank Goldman Sachs said, in a note to client on June 4, that a potential economic rebound and production cuts by Organization of the Petroleum Exporting Countries (OPEC) could push crude to 85 U.S. dollars a barrel by the end of the year, and to 95 U.S. dollars a barrel by the end of 2010.

Other metal rose steeply too. Copper in the past two months climbed 30 percent at the Shanghai Futures Exchange, rising near 10,000 yuan per tonne.

Gold has rallied from last year's low of 682.41 U.S. dollars an ounce in October to as high as 992.10 U.S. dollars, threatening to break the 1,000 U.S. dollars mark.

Farm produce were also affected. In a month, soybean at the Dalian Futures Exchange jumped 15 percent, while wheat climbed 19 percent in Chicago market. Through March to June, corn rebounded by 30 percent from the five-month low.

"World demand for commodity is gradually recovering, but it is still too early to say bullish. Therefore we can not say the commodity bulls are pushed by buoyant demand," said Zhuang Jian.

China has been blamed for taking advantage of lower prices to build up reserves of oil and metals, thus pushing up prices.

Zhuang Guobao, deputy director of the National Development and Reform Commission (NDRC) said last Thursday that most of the oil reserves in China have been filled up, so the demand will not rise as much as that in the past a few months.

Nobuo Tanaka, executive director of the International Energy Agency, told the 21st Century Business Herald on June 5 that "We are very concerned about the steady rise in oil prices, which could jeopardize the global economic repair".

Pull back on weak U.S. dollar

Different from commodity bulls, U.S. dollar posted the worst decline in more than 20 years. The U.S. dollar Index, which measures the value of the greenback against six major currencies, slumped more than 10 percent over the past three months.

Yang Tao, researcher with the Finance Institute of the Chinese Academy of Social Sciences said U.S. dollar, in the eyes of many, is no longer the safe heaven, a notion which was strengthened after the federal reserve unveiled the quantitative easing monetary policy on March 17.

The federal reserve itself even confessed that they saw near-term challenges brought by the ultra-loose monetary policy and mounting government debts.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," said Ben Bernanke, federal reserve's chairman on June 3 at the testimony to the congress.

Heeding the recent rise in rates on mortgages and longer-term Treasury securities, Bernanke said the increases appear to reflect a shift by investors away from the safe haven of U.S. bonds.

If the U.S. dollar continues to fall, the inflation fears will accumulate and pass to around the world, since most of the commodities are priced at U.S. dollars, said Yang Tao, a researcher with the Chinese Academy of Social Sciences.

The inflation fears, as usual, will grow into real inflation, as people rush to buy in fear of further price spike, he said.

Liu Yuhui, colleague of Yang noted, China should heed the danger of the inflation exported from the America, since China used to pay the price.

"In 2007-2008, the government had subsidized with China's top oil companies with more than 10 billion yuan to make up their losses as the energy prices were capped despite the runaway crude costs." he said.

"It is a tough job for the government to pay the bills again, when its purse strings are tight right now," he said.

China on alert

Not only on commodities, inflation worries and ample liquidity also weigh on capital market in China. The benchmark Shanghai Composite Index has gained 55 percent since the last trading day in 2008.

Observing a large sums of bank credit went to the stock market, China's banking regulator has issued warnings repeatedly this year, urging lenders to keep money away from the capital market and benefit the real economy.

Land developers have taken actions. According to data released by the Beijing Municipal Land Reserve Information Center on June 3, ten deals were clinched in May for residential housing construction in Beijing, equal to a floor area of one million square meters, quadrupled the area for April,

More transactions do not mean a restoration of developer's confidence, but their ways to cope with the foreseeable inflation, said Ha Jiming, chief economist with the China International Capital Corp.

Xue Jianxiong, analyst with the E-House China, a real estate agent, said many luxury housing are on hot sale in the eastern coastal areas as rich people there, say entrepreneurs buy new homes for investment in fear of future inflation.

"Consumer prices in China remained subdued, and I do not think inflation will happen this year. But such expectation will grow and deserves our attention", said Yang Tao.

The central bank should carefully consider when to withdraw the excess liquidity to prevent it prompting runaway inflation, he said.

Yang admitted that it is hard for any monetary authority to foresee when is the right time for policy adjustment.

"For most of the governments in the world, decisions were made with hindsight," he said.

He noted an expectation of moderate inflation is good economic revival, as consumers will not postpone their spending, at least. The monetary policy is unlikely to change this year.

"The loose monetary policy is a double-edge-sword. It is necessary during recession, but harmful if it goes out of control," he said.

(Xinhua News Agency June 9, 2009)