| Significant Accounting Policies | 2. Significant Accounting
Policies
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
The Trust is an investment company in accordance with U.S. GAAP and
follows the accounting and reporting guidance according to
Accounting Standards Codification (“ASC”) Topic 946.
The Trust is not registered, and is not required to be registered
under the Investment Company Act.
2.3. Fair Value Measurement
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.
The Trust does not hold derivative instruments, and its assets only
consist of allocated gold bullion and, from time to time, cash,
which is used to pay expenses.
Various inputs are used in determining the fair value of the
Trust’s assets or 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 and
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$)
March 31, 2017 Level 1 Level 2 Level 3
Investment in Gold $ 33,359,636 $
— $
—
Total $ 33,359,636 $
— $
—
September 30, 2016
Investment in Gold $ 40,357,092 $
— $
—
Total $ 40,357,092 $
— $
—
There were no transfers between Level 1 and other Levels for
the six months ended March 31, 2017, and for the year ended
September 30, 2016.
The Trustee values the gold held by the Trust on the basis of the
price of an ounce of gold as determined by
ICE Benchmark Administration Limited (“IBA”), a
benchmark administrator, which provides an independently
administered auction process as well as the overall 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 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.
2.4. Custody of Gold
Gold is held by HSBC Bank plc (the “Custodian”) on
behalf of the Trust. During the six month period ended
March 31, 2017, no gold was held by a subcustodian. During the
year ended September 30, 2016, the only time 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 at the time.
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, the gold is transferred to the Trust’s allocated
bullion account at the Custodian within three business days of the
trade date.
(Amounts in 000’s of
US$) Mar-31, 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, the gold is transferred from the Trust’s allocated
bullion account with the Custodian within three business days of
the trade date.
(Amounts in 000’s of
US$) Mar-31, Sep-30,
Gold payable $ 47,404 $ 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 Net Assets as of March 31, 2017. Changes in the Shares
for the six months ended March 31, 2017 and for the year
ended September 30, 2016, are as follows:
(All amounts are in
000’s) Six Months Ended Year Ended
Activity in Number of Shares Issued and Outstanding:
Creations 39,900 174,700
Redemptions (78,300 ) (86,000 )
Net change in number of Shares Issued and Outstanding (38,400 ) 88,700
(Amounts in 000’s of
US$) Six Months Ended Year Ended
Activity in Value of Shares Issued and Outstanding:
Creations $ 4,705,042 $ 20,832,493
Redemptions (8,989,113 ) (10,102,639 )
Net change in value of Shares Issued and Outstanding ($ 4,284,071 ) $ 10,729,854
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 six month period ended March 31, 2017
of ($2,640,593) is made up of a realized loss of ($830) from the
sale of gold to pay expenses, a realized loss of ($277,748) from
gold distributed for the redemption of Shares, and a change in
unrealized depreciation of ($2,362,015) on investment in gold.
The Trust’s net realized and change in unrealized gain/(loss)
on investment in gold for the six month period ended March 31,
2016 of $2,705,064 is made up of a realized loss of ($3,773) from
the sale of gold to pay expenses, a realized loss of ($360,557)
from gold distributed for the redemption of Shares, and a change in
unrealized appreciation of $3,069,394 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 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
March 31, 2017 or September 30, 2016.
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 Internal Revenue
Service. As of March 31, 2017, the 2016, 2015 and 2014 tax
years remain open for examination. There are no examinations in
progress at period end. |
