| Significant Accounting Policies | 2. Significant Accounting
Policies
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America requires those responsible for preparing financial
statements to make estimates and assumptions that affect the
reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant
accounting policies followed by the Trust.
2.1. Basis of Accounting
The financial statements have been prepared in conformity with U.S.
generally accepted accounting principles (“U.S. GAAP”),
which require management to make certain estimates and assumptions
that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
2.2. Investment Company Status
In June 2013, the FASB issued Accounting Standards Update 2013-08,
Investment Companies – Amendments to the Scope,
Measurement, and Disclosure Requirements
As a result of the prospective application of ASU 2013-08, certain
disclosures required by Topic 946 are only presented for periods
beginning October 1, 2014. Financial statements and
disclosures for periods prior to October 1, 2014 will continue
to be presented in their previously reported form, however certain
captions have been changed. The primary changes to the financial
statements resulting from the adoption of ASU 2013-08 and
corresponding application of Topic 946 include:
• Reporting of investment in gold at
fair value on the Unaudited Statement of Financial Condition, which
was previously reported at the lower of average cost or market
value;
• Recognition of the net change in
unrealized appreciation/depreciation on investment in gold within
the Unaudited Statements of Operations, which was previously
reported as an “Adjustment of redeemable shares to redemption
value” on the Audited Statement of Changes in
Shareholders’ Deficit;
• Shares of the Trust are classified as
Net Assets on the Unaudited Statement of Financial Condition, which
was previously classified as “Shares at redemption value to
investors.” An adjustment was recorded as of October 1,
2014 to reclassify the balance of Shares at redemption value to
investors at September 30, 2014 into Net Assets as follows
(all balances in 000’s):
(Amounts in 000’s of US$) Balance at Transition ASU 2013-08
Shares at redemption value to investors $ 30,096,869 $ (30,096,869 ) $
—
Net Assets
— 30,096,869 30,096,869
• The addition of a Schedule of
Investments and a Financial Highlights note to the financial
statements.
ASU 2013-08 prescribes that an entity that qualifies as an
investment company as a result of an assessment of its status shall
account for the effect of the change in status prospectively from
the date of the change in status and shall recognize any impact as
a cumulative effect adjustment to the net asset value at the
beginning of the period. No cumulative effect adjustment to net
asset value was required to be recorded as a result of the Trusts
adoption of ASU 2013-08 because the fair value of gold bullion held
by the Trust was lower than the cost of gold held by Trust at
September 30, 2014, and therefore, there was no accumulated
shareholders’ equity or (deficit).
2.3. Fair Value Measurement
FASB Accounting Standards Codification 820, “Fair Value
Measurements and Disclosures” (“ASC 820”),
provides a single definition of fair value, a hierarchy for
measuring fair value and expanded disclosures about fair value
adjustments.
Various inputs are used in determining the fair value of the
Trust’s assets or liabilities. These inputs are categorized
into three broad levels. Level 1 includes unadjusted prices in
active markets for identical assets or liabilities. Level 2
includes other significant observable market based inputs
(including prices for similar securities, interest rates,
prepayment speed, and credit risk). Level 3 includes unobservable
inputs, which may include management’s own assumptions in
determining the fair value of investments. The Trust does not hold
any derivative instruments, and its assets only consist of
allocated gold bullion and gold receivable; representing gold
covered by contractually binding orders for the creation of Shares
where the gold has not yet been transferred to the Trust’s
account and, from time to time, cash, which is used to pay
expenses.
The following table summarizes the Trust’s investments at
fair value as of June 30, 2015:
(Amounts in 000’s of
US$) Level 1 Level 2 Level 3
Investment in Gold $ 26,852,191 $
— $
—
Total $ 26,852,191 $
— $
—
On March 20, 2015, the LBMA Gold Price was initiated and
replaced the London Gold Fix. ICE Benchmark Administration Limited
(“IBA”) an independent specialist benchmark
administrator provides the auction platform and methodology as well
as the overall independent administration and governance for the
LBMA Gold Price. In determining the net asset value
(“NAV”) of the Trust, the Trustee values the gold held
by the Trust on the basis of the price of an ounce of gold
determined by the IBA 3:00 PM auction process (“LBMA Gold
Price PM”), which is an electronic auction, with the
imbalance calculated, and the price adjusted in rounds (45 seconds
in duration). The auction runs twice daily at 10:30 AM and 3:00 PM
London time. Prior to March 20, 2015, the Trustee valued the
gold held by the Trust on the basis of the price of an ounce of
gold set by the afternoon session of the twice daily fix of the
price of an ounce of gold which started at 3:00 PM London, England
time and was performed by the four members of the London Gold Fix.
Beginning March 20, 2015 the Trustee determines the NAV of the
Trust on each day the NYSE Arca is open for regular trading, at the
earlier of the LBMA Gold Price PM for the day or 12:00 PM New York
time. If no LBMA Gold Price is made on a particular evaluation day
or if the LBMA Gold Price has not been announced by 12:00 PM New
York time on a particular evaluation day, the next most recent LBMA
Gold Price (AM or PM) is used in the determination of the NAV of
the Trust, unless the Trustee, in consultation with the Sponsor,
determines that such price is inappropriate to use as the basis for
such determination.
As of April 1, 2015, the Financial Conduct Authority in the
U.K. regulates the LBMA Gold Price.
While we believe that the LBMA Gold Price is an appropriate
indicator of the value of gold, there are other indicators that are
available that could be different than the LBMA Gold Price. The use
of such an alternative indicator could result in materially
different fair value pricing of the gold in the Trust which could
result in market adjustments or redemption value adjustments of the
outstanding redeemable Shares.
Once the value of the gold has been determined, the Trustee
subtracts all estimated accrued fees (other than the fees to be
computed by reference to the value of the adjusted net asset value
(“ANAV”) of the Trust or custody fees computed by
reference to the value of gold held in the Trust), expenses and
other liabilities of the Trust from the total value of the gold and
all other assets of the Trust (other than any amounts credited to
the Trust’s reserve account, if established). The resulting
figure is the ANAV of the Trust. The ANAV of the Trust is used to
compute the fees of the Trustee, the Sponsor and the Marketing
Agent.
To determine the Trust’s NAV, the Trustee subtracts from the
ANAV of the Trust the amount of estimated accrued but unpaid fees
computed by reference to the value of the ANAV of the Trust and
computed by reference to the value of the gold held in the Trust
(i.e. the fees of the Trustee, the Sponsor, the Marketing Agent and
the Custodian). The Trustee determines the NAV per Share by
dividing the NAV of the Trust by the number of Shares outstanding
as of the close of trading on NYSE Arca.
2.4. Custody of Gold
Effective December 22, 2014, HSBC Bank plc (the
“Custodian”) took over custodial responsibilities of
the Trust from HSBC Bank USA, N.A. Gold is held by the Custodian,
on behalf of the Trust.
2.5. Gold Receivable
Gold receivable represents the quantity of gold covered by
contractually binding orders for the creation of Shares where the
gold has not yet been transferred to the Trust’s account.
Generally, ownership of the gold is transferred within three
business days of the trade date.
(Amounts in 000’s of
US$) Jun-30, Sep-30,
Gold receivable $
— $
—
2.6. Gold Payable
Gold payable represents the quantity of gold covered by
contractually binding orders for the redemption of Shares where the
gold has not yet been transferred out of the Trust’s account.
Generally, ownership of the gold is transferred within three
business days of the trade date.
(Amounts in 000’s of
US$) Jun-30, Sep-30,
Gold payable $ 67,358 $ 140,368
2.7. Creations and Redemptions of
Shares
The Trust creates and redeems Shares from time to time, but only in
one or more Baskets (a Basket equals a block of
100,000 Shares). The Trust issues Shares in Baskets to certain
authorized participants (“Authorized Participants”) on
an ongoing basis. The creation and redemption of Baskets is only
made in exchange for the delivery to the Trust or the distribution
by the Trust of the amount of gold and any cash represented by the
Baskets being created or redeemed, the amount of which will be
based on the combined net asset value of the number of Shares
included in the Baskets being created or redeemed determined on the
day the order to create or redeem Baskets is properly received.
As the Shares of the Trust are redeemable in Baskets at the option
of the Authorized Participants, the Trust has classified the Shares
as Redeemable Shares on the Statement of Financial Condition as of
September 30, 2014 and as Net Assets as of
June 30, 2015. Prior to adoption of ASU 2013-08, the
Trust recorded the redemption value of the Shares, which
represented its maximum obligation, as Redeemable Shares with the
difference from cost as an offsetting amount to the
Shareholders’ Equity. Changes in the Shares for the nine
months ended June 30, 2015 and for the year ended
September 30, 2014, are as follows:
(All amounts are in
000’s) Nine Months Ended Year Ended
Activity in Number of Shares Issued and Outstanding:
Creations 44,500 47,200
Redemptions (63,300 ) (91,500 )
Net increase/(decrease) Shares Issued and Outstanding (18,800 ) (44,300 )
(Amounts in 000’s of
US$) Nine Months Ended Year Ended
Activity in Value of Shares Issued and Outstanding:
Creations $ 5,289,912 $ 5,893,107
Redemptions (7,283,671 ) (11,209,535 )
Net increase/(decrease) Shares Issued and Outstanding $ (1,993,759 ) $ (5,316,428 )
2.8. Revenue Recognition
Policy
The Trustee will, at the direction of the Sponsor or in its own
discretion, sell the Trust’s gold as necessary to pay the
Trust’s expenses. When selling gold to pay expenses, the
Trustee will endeavor to sell the smallest amount of gold needed to
pay expenses in order to minimize the Trust’s holdings of
assets other than gold. Unless otherwise directed by the Sponsor,
when selling gold, the Trustee will endeavor to sell at the price
established by the LBMA Gold Price PM. The Trustee will place
orders with dealers (which may include the Custodian) through which
the Trustee expects to receive the most favorable price and
execution of orders. The Custodian may be the purchaser of such
gold only if the sale transaction is made at the next LBMA Gold
Price (either AM or PM) following the sale order. A gain or loss is
recognized based on the difference between the selling price and
the average cost of the gold sold, and such amounts are reported as
net realized gain/(loss) from investment in gold sold to pay
expenses on the Statement of Operations.
During the nine month period ended June 30, 2015, the fair
value of gold contributed amounted to $5,289,912,061. The total
cost and fair value of gold distributed and sold was $7,606,027,651
and $7,371,295,384, respectively, resulting in a net realized loss
of ($234,732,267).
During the nine month period ended June 30, 2014, the fair value of
gold contributed amounted to $4,407,458,896. The total cost and
fair value of gold distributed and sold was $8,721,623,674 and
$9,051,894,397, respectively, resulting in a net realized gain of
$330,270,723.
2.9. Income Taxes
The Trust is classified as a “grantor trust” for US
federal income tax purposes. As a result, the Trust itself will not
be subject to US federal income tax. Instead, the Trust’s
income and expenses will “flow through” to the
Shareholders, and the Trustee will report the Trust’s
proceeds, income, deductions, gains, and losses to the Internal
Revenue Service on that basis. The Sponsor of the Trust has
evaluated whether or not there are uncertain tax positions that
require financial statement recognition and has determined that no
reserves for uncertain tax positions are required as of June 30,
2015 or September 30, 2014.
The Sponsor evaluates tax positions taken or expected to be taken
in the course of preparing the Trust’s tax returns to
determine whether the tax positions are
“more-likely-than-not” to be sustained by the
applicable tax authority. Tax positions not deemed to meet that
threshold would be recorded as an expense in the current year. The
Trust is required to analyze all open tax years. Open tax years are
those years that are open for examination by the relevant income
taxing authority. As of June 30, 2015, the 2014, 2013 and 2012 tax
years remain open for examination. There are no examinations in
progress at period end. |
