Sector	PEFy1	PEFy2	2017Growth
Consumer Discretionary	14.86	13.03	12.61
Consumer Staples	18.57	16.54	13.09
Energy	11.62	10.21	14.88
Financials	11.91	10.60	11.26
Health Care	17.31	15.53	11.07
Industrials	15.00	13.34	11.98
Information Technology	15.17	13.31	12.42
Materials	11.08	10.01	10.01
Real Estate	14.44	13.12	11.24
Telecommunication Services	12.49	11.20	13.76
Utilities	11.88	10.63	11.33

Chart: Sector Performance In July – Materials Lead

Strong Materials Sector Performance - Repaints Last Year Picture

Source: ML

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Gold and Thoughts

Emerging market stocks are up 21% ytd this year, Europe is up 14% and the US is up 8.5% while gold is up 9.6%.



In the usual mode emerging and developed markets and gold have been anti correlated asset classes: gold has been rising since appetite for risk is low while markets are stronger when the risk appetite grows.



In another mode gold markets are both stronger when there is a lot of spare money chasing assets. In this mode emerging markets economies are usually doing well, so the high demand for jewellery in India and China, is good for the gold price.



While in the third mode of the markets the gold is stronger when there is game between US dollar and China yuan and especially when there is a tendency of China currency to be stronger vs. USD. In this case investment managers start reviewing all the possibilities for global economic rebalancing. Thus, when China imports get cheaper with stronger domestic currency, Chinese start to buy more gold (actually oil as well) with more expensive yuan, and the demand drives the dollar price for gold.



At times gold is also stronger when the inflation is higher. It is usually not as good for the markets because rates are higher and risk appetite is lower.



This year all the reasons for higher gold are working to push the gold price higher and gold bulls happy.



The risk is reining high that some sort of geo political one off (Iran- US tensions due to the nuclear agreement, North Korean issue, etc) would possible shake the markets.



Emerging markets economies are doing well. India and China show higher demand for buying gold, with India being ahead of new import taxes.



Dollar shows weaker positions vs. many emerging and developed markets currencies and in particular Chinese yuan



Finally, there is a strong expectation to see higher inflation as well as higher rates in the US as the country’s economy will continue to to grow.



Ghana, one of the top markets this year is up 38%, with 35% up in July with most of the gain made just in one month.







Global top gold producer China, which produces 16bn$ worth of gold each year is up 30% this year. Australia, which holds second place in terms of gold production with 10bn$ of gold is up 10% this year and Russia producing 9bn$ of gold per year in current prices is an outlier down 13%. The US with its 7.6bn$ of gold production is up 8.5% in terms of its equities, while Canada with its 6.2$bn of gold in annual gold production is up 3%. Peru producing 5.4$bn is up 11% ytd. South Africa, producing 5.4$bn of gold pa is up 12% this year. Mexico with its 4.5$bn of gold is down 0.9%. Indonesia produces 3.6bn$ of gold and is up 11% ytd.



One of the strongest markets this year connected to gold is Ghana, which once part of the Mali Kingdom where king Musa 1 has once the holder of all the global gold. With the net production of 3.2$bn of gold it is one of the most dynamically developing gold mining countries in the world with 38% ytd.



Uzbekistan is another gold related country which is doing good this year (at least in terms of its economic growth GDP +5.2% or so). Unfortunately, Uzbek stocks are not available to foreign investors (which could change soon), but the country comes up 9th in terms of global gold production with 3.2bn$ of gold produced annually at current price.





In the same manner as oil, which provides very strong factors for growth for oil exporting countries i.e. Russia, Brazil, Indonesia and etc., there is a connection between gold strength and country equities.

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The connection between equities and gold in most cases above is a pure coincidence. While the connection between gold and economic growth is not as strong for major gold producers as it is for oil producers. Gold would have played a bigger role for gold producing countries economies if the gold price would raise 10 fold and the cash margins for production of gold would match the cash margins for production of oil. In that case the gold would account for a very significant added value for the gold producers.



Can gold price rise 10 fold? Oil is mostly used to produce energy. Energy is becoming cheaper with the development of alternative energy sources, and oil is less used for energy production in some countries.



The drivers for gold demand are less researched than the drivers for energy demand. On the one hand there is risk of inflation; global net worth and dollar strength are among the factors for gold value. While on the other hand gold is mostly used for safety, power, sex and repentance that perhaps will be in more demand if energy becomes cheaper in another round of global economic rebalancing. In that case it is worth examining gold equities in more detail.

Gold List

Consumer Discretionary: Overnight Markets: US stocks dip as Disney earnings disappoint	Consumer Staples: Asia equities mixed as fears over US-NK tensions ease	Energy: Asia equities mixed as fears over US-NK tensions ease
Financials: Asia equities mixed as fears over US-NK tensions ease	Health Care: Investors dump healthcare stocks, appetite for tech fades: BAML	Industrials: Dow closes 36 points lower on US-North Korea tensions, Disney's fall
Materials: Australia shares edge up as materials gain; NZ flat	Technology: Tech stocks send another bearish warning of bigger market sell-off ...	Telecommunication Services: Technical Reports on Communication Services Equities ...
Utilities: Utilities, autos help European shares turn around, results weigh on ...