| 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.
Certain amounts in 2014 have been reclassified to conform to
current presentation. 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 2013-08
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 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
Statements of Operations, which was previously reported as an
“Adjustment of redeemable shares to redemption value”
on the Statement of Changes in Shareholders’
Deficit.
•
Shares of the Trust are classified as Net Assets on the
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 September 30, 2014 Transition Adjustment ASU
2013-08 Balance
at October 1, 2014
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 Investment 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 Topic 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.
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.
U.S. GAAP
defines fair value as the price the Trust would receive to sell an
asset or pay to transfer a liability in an orderly transaction
between market participants at the measurement date. The
Trust’s policy is to value its investments at fair
value.
Various
inputs are used in determining the fair value of assets and
liabilities. Inputs may be based on independent market data
(“observable inputs”) or they may be internally
developed (“unobservable inputs”). These inputs are
categorized into a disclosure hierarchy consisting of three broad
levels for financial reporting purposes. The level of a value
determined for an asset or liability within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement in its entirety. The
three levels of the fair value hierarchy are as follows:
Level 1 – Unadjusted quoted prices
in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted
prices included within Level 1 that are observable for the asset or
liability either directly or indirectly, including quoted prices
for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are
not considered to be active, inputs other than quoted prices that
are observable for the asset or liability, and inputs that are
derived principally from or corroborated by observable market data
by correlation or other means; and
Level 3 – Inputs that are
unobservable for the asset or liability, including the
Trust’s assumptions used in determining the fair value of
investments.
The following
table summarizes the Trust’s investments at fair
value:
(Amounts in
000’s of US$)
September
30, 2016 Level
1 Level 2 Level 3
Investment in
Gold $ 40,357,092 $ — $ —
Total $ 40,357,092 $ — $ —
September
30, 2015
Investment in
Gold $ 24,503,318 $ — $ —
Total $ 24,503,318 $ — $ —
There were no
transfers between Level 1 and other Levels for the years ended
September 30, 2016 and 2015.
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.
On
March 20, 2015, the LBMA Gold Price replaced the London Gold
Fix. ICE Benchmark Administration Limited (“IBA”)
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. 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 PM is announced on a
particular evaluation day or if the LBMA Gold Price PM 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.
Prior to
July 17, 2015, once the value of the gold had been determined,
the Trustee subtracted 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
was used to compute the fees of the Trustee, the Sponsor and the
Marketing Agent prior to July 17, 2015.
To determine
the Trust’s NAV, the Trustee subtracted 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. The Trustee
determined the NAV per Share by dividing the NAV of the Trust by
the number of Shares outstanding as of the close of trading on the
NYSE Arca.
Effective
July 17, 2015, the Trust’s only recurring fixed expense
is the Sponsor’s fee, which accrues daily at an annual rate
equal to 0.40% of the daily NAV, in exchange for the Sponsor
assuming the responsibility to pay all ordinary fees and expenses
of the Trust.
2.4. Custody of Gold
Effective
December 22, 2014, HSBC Bank plc (the “Custodian”)
assumed custodial responsibilities for the Trust from HSBC Bank
USA, N.A. Gold is held by the Custodian, on behalf of the Trust.
During the year ended September 30, 2016, the only time that gold
was held by a subcustodian (the Bank of England) was during the
period January through March and the greatest amount of gold held
during such period was approximately 29 tonnes, or approximately
3.8% of the Trust’s gold. During the two years ended
September 30, 2015 and 2014, respectively, the Custodian did not
utilize any subcustodians 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$) Sep-30, Sep-30, 2015
Gold
receivable $ — $ 117,353
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$) Sep-30, 2016 Sep-30, 2015
Gold payable $ 50,461 $ —
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 September 30,
2016 and 2015, respectively. 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 Shareholders’
Equity. Changes in the Shares for the years ended
September 30, 2016, 2015 and 2014 are as follows:
(All amounts are in 000’s) Year Ended Sep-30, 2016 Year Ended Sep-30, 2015 Year Ended Sep-30, 2014
Activity in Number of
Shares Issued and Outstanding:
Creations 174,700 55,100 47,200
Redemptions (86,000 ) (81,700 ) (91,500 )
Net increase/(decrease)
Shares Issued and Outstanding 88,700 (26,600 ) (44,300 )
(Amounts in
000’s of US$) Year Ended Sep-30,
2016 Year
Ended Sep-30,
2015 Year
Ended Sep-30,
2014
Activity in Value of
Shares Issued and Outstanding:
Creations $ 20,832,493 $ 6,447,849 $ 5,893,107
Redemptions (10,102,639 ) (9,247,346 ) (11,209,535 )
Net increase/(decrease)
Shares Issued and Outstanding $ 10,729,854 $ (2,799,497 ) $ (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, the Trustee
will sell gold to the Custodian at the next LBMA Gold Price 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.
The
Trust’s net realized and change in unrealized gain/(loss) on
investment in gold for the year ended September 30, 2016 of
$5,078,499 is made up of a realized gain of $614 from the sale of
gold to pay expenses, a realized loss of ($6,601) from gold
distributed for the redemption of Shares, and a change in
unrealized appreciation of $5,084,486 on investment in
gold.
The
Trust’s net realized and change in unrealized gain/(loss) on
investment in gold for the year ended September 30, 2015 of
($2,575,188) is made up of a realized loss of ($5,170) from the
sale of gold to pay expenses, a realized loss of ($447,044) from
gold distributed for the redemption of Shares, and a change in
unrealized depreciation of ($2,122,974) on investment in
gold.
The
Trust’s total gain/(loss) on gold for the year ended
September 30, 2014 of ($96,630) is made up of a gain of $6,302
on the sale of gold to pay expenses, plus a gain of $374,322 on
gold distributed for the redemption of Shares, minus an unrealized
(loss) of ($477,254) on investment in gold.
2.9 Income Taxes
The Trust
identifies its major tax jurisdiction as the United States. The
Trust is classified as a “grantor trust” for U.S.
federal income tax purposes. As a result, the Trust itself will not
be subject to U.S. 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
September 30, 2016 or 2015.
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 September 30, 2016,
the 2015, 2014, and 2013 tax years remain open for examination.
There are no examinations in progress at period end. |
