The market is up 44. The SFE Futures were down 4 this morning.

The Dow Jones closed down 77 overnight, after its biggest three-day rally since 2009. German and French leaders met to discuss the European debt crisis and proposed greater economic integration and a bi-annual meeting of the 17 EU nations and the appointment of a President. The lack of meaningful outcomes left the markets cold and the US dropped 1% during the Sarkozy and Merkel press conference. Fitch reaffirmed the US’s AAA rating with a “stable” outlook on US government debt. US industrial production was higher than expected in July. German GDP came in at just 0.1% in the last Q against forecasts of +0.5%. The oil price was down $1.23 to $86.65 and gold rose $27 to $1785. The A$ is buying 104.42c down from 104.85c.

In the news today…

  • Woodside Petroleum (WPL) first half underlying profit was up 3.6% to $842m, some 11% higher than consensus analysts’ forecasts. WPL will pay a 55c interim dividend. WPL down 8c to 3724c.
  • Westfield Group (WDC) has posted a 32% fall in half year profit. The group confirmed earlier full year guidance. Revenue was down 24.5% and EBITDA (incl property revaluations) was down 26.8%. Declared an interim dividend of 24.2c.  WDC down 2.2%.
  • Westfield Retail Trust (WRT) reported profit of $274.9m – below estimates around of $285m. They reiterated their CY11 earnings guidance and distribution guidance. WRT up 0.8%.
  • The Reject Shop (TRS) full year profit fell 30.8% to $16.17m from $23.4m a year earlier. The result was inline with earlier guidance but slightly below consensus estimates. They blame natural disasters and a weak retail environment. TRS down 10c to 1001c.
  • CSL Ltd (CSL) — Full year profit in line with expectations, down 10.7% to $940.6m from $1.05bn. They say the rising Australian dollar was to blame, with profit up 14% on a constant currency basis. FY12 guidance of 10% underlying growth. CSL down 2.5%.
  • Boral (BLD) reported a full year profit of $167.7m after a $90.5m loss the previous year. Boral also announced that it had bought out joint venture partner Lafarge for €380m to take full ownership of the Asian operations. BLD will pay a final dividend of 7c per share. They said “the residential new build market in Australia weakened considerably in the second half of FY2011”. BLD down 5.9%.
  • Brambles (BXB) said they will sell their information management division, Recall, estimated to be worth up to US$2bn, to focus on pallet pooling solutions. The company reported full year profit was up 6% to $US$524m which was better than expected. BXB up 2.4% to 680c.
  • ARB Corp. (ARP) FY profit better than expected – up 16% to $37.9m. This was 6% higher than expectations. The company said “The current economic environment remains challenging, however, the outlook for the Company is positive and the Board is cautiously optimistic about the future”. ARP up 6%.

I have had a lot of questions askinghow do I buy physical gold?” Clearly people are nervous. The Channel Nine news yesterday had a segment on Melbourne housewives buying gold in gold parties (like Tupperware parties).

Gold is not really an “investment” that you can assess and value. It is a commodity price play and you do that on a rather ethereal rather than scientific analysis. It depends on future demand in a now very speculative market.

At the moment the six-fold increase in the gold price in ten years and in particular the rise in the last three years is clearly being fuelled by concerns that we are on the precipice of a global financial collapse. The chances of that still exist in my view and gold retains interest until that changes.

  • One way to get exposure to gold is to buy gold equities. It’s definitely not physical gold … but they are tradeable and well understood and (in the long term) do track the gold price.
  • ETFs backed by physical gold are the most common and accessible ways to buy Gold. (Subscribe or sign up for a free trial to read a Marcus Today article on “Exchange Traded Funds”).
  • See “GOLD” (that’s its ASX code) for an A$ exposure to gold.
  • There is a Betashares US$ Gold price ETF as well now – QAU.AXW. It’s a Currency Hedged Gold Bullion ETF tracking the US$ Gold Bullion price (Physically backed by Gold in the JP Morgan Chase London Vault).

But before you buy an ETF, know that even an ETF backed by physical gold (and many aren’t) can have significant issues … it is not the same as owning physical gold. If the parent organisation runs into trouble, has a credit rating downgrade, it will affect prices. Any doubt about the integrity of their promise that their ETF represents physical gold could be disastrous. Yes the doubt only appears in extreme circumstances, but that’s why you buy gold, and by then it’s too late, just ask AIG ETF holders in the GFC … trading was suspended and prices fell 50% in a day on an AIG credit rating downgrade.

So ETFs will serve their purpose in a stable market but in extreme markets (the conditions that drive people to buy gold in the first place) you may find unforeseen issues with the structure that see ETFs depart from physical gold ownership … whatever the promises. Basically … despite the marketing, Gold ETFs are vastly different to holding real gold.

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