Chairman Bernanke has denied that his monetary policies have contributed to increased interest in commodity market and a recent report by the Federal Reserve Bank of San Francisco has been equally strong in denying any connection. Yet a new report by the Bank of Japan, “Recent Surge in Global Commodity Prices”, argues logically that there is a strong connection. It is a report worth reading and confirms what we have been saying for many years. Here is the official summary:- “Global commodity prices have been rising again since 2009, and particularly rapidly since the fall of 2010. While the strong increase in commodity prices has been driven by global economic growth propelled by emerging economies, speculative investment flows into commodity markets have amplified the intensity of the price surge. The dynamics of global commodity prices has been changing as well, in accordance with the growing presence of financial investors in commodity markets. The entry of new financial investors has paved the way for the “financialization of commodities”. Consequently, global commodity markets have become more sensitive to portfolio rebalancing by financial investors, which has made commodity markets more correlated with other asset markets, including major equity markets. Furthermore, globally accommodative monetary conditions demand for commodities and driving more investment flows into financialized commodity markets.” That one paragraph says it all: prices are being driven by the increasing involvement of the financial community not just in the developed world but in China also. We have recently addressed the situation in China in our last visit report.