| 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
(“U.S. GAAP”) 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 Trust is
an investment company and, therefore, applies the specialized
accounting and reporting guidance in Accounting Standards
Codification (“ASC”) Topic 946 Financial
Services—Investment Companies.
2.2. 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, 2017 Level 1 Level 2 Level 3
Investment in
Gold $ 35,669,225 $ — $ —
Total $ 35,669,225 $ — $ —
(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 $ — $ —
There were no
transfers between Level 1 and other Levels for the years ended
September 30, 2017 and 2016.
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.
2.3. 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 years ended September 30, 2017 and September 30,
2015, no gold was held by a subcustodian. Gold was held by a
subcustodian (the Bank of England) during the period January
through March 2016, and the greatest amount of gold held during
such period was approximately 29 tonnes, or approximately 3.8% of
the Trust’s gold.
2.4 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 two business days of
the trade date.
(Amounts in 000’s of US$) Sep-30, Sep-30,
Gold
receivable $ — $ —
2.5 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 two business days of the trade
date.
(Amounts in 000’s of US$) Sep-30, Sep-30,
Gold payable $ — $ 50,461
2.6 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 September 30, 2017, 2016 and 2015, respectively.
Changes in the Shares for the years ended September 30, 2017,
2016 and 2015 are as follows:
(All amounts are in 000’s) Year Ended Sep-30, 2017 Year Ended Sep-30, 2016 Year Ended Sep-30, 2015
Activity in Number of
Shares Issued and Outstanding:
Creations 92,500 174,700 55,100
Redemptions (119,400 ) (86,000 ) (81,700 )
Net increase/(decrease)
in Number of Shares Issued and Outstanding (26,900 ) 88,700 (26,600 )
(Amounts in
000’s of US$) Year Ended Sep-30, Year Ended Sep-30, Year Ended Sep-30,
Activity in Value of
Shares Issued and Outstanding:
Creations $ 11,161,181 $ 20,832,493 $ 6,447,849
Redemptions (13,903,151 ) (10,102,639 ) (9,247,346 )
Net increase/(decrease)
in Value of Shares Issued and Outstanding $ (2,741,970 ) $ 10,729,854 $ (2,799,497 )
2.7 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, 2017 of
($1,757,888) is made up of a realized gain of $252 from the sale of
gold to pay expenses, a realized loss of ($222,162) from gold
distributed for the redemption of Shares, and a change in
unrealized appreciation of ($1,535,978) 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, 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 appreciation of ($2,122,974) on investment in
gold.
2.8 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, 2017 or 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” |
