| 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 Sponsor has determined that the Trust falls within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies, and has concluded that for reporting purposes, the Trust is classified as an Investment Company. The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act.
2.2. Valuation of Gold
The Trust follows the provisions of ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 provides guidance for determining fair value and requires disclosure regarding the inputs to valuation techniques used to measure fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Gold is held by JPMorgan Chase Bank, N.A. (the “Custodian”), on behalf of the Trust, at the Custodian’s Zurich, Switzerland vaulting premises and may also be held at the Zurich, Switzerland vaulting premises of UBS AG and is recorded at fair value. The cost of gold is determined according to the average cost method and the fair value is based on the London Bullion Market Association (“LBMA”) PM Gold Price. Realized gains and losses on transfers of gold, or gold distributed for the redemption of Shares, are calculated on a trade date basis as the difference between the fair value and cost of gold transferred.
Since March 20, 2015, the LBMA PM Gold Price is set using the afternoon session of the ICE Benchmark Administration (“IBA”) equilibrium auction, an electronic, tradable and auditable over-the-counter auction market with the ability to participate in USD, Euros or British Pounds for LBMA authorized participating gold bullion banks or market markets (“gold participants”) that establishes a reference gold price for that day’s trading.
Prior to March 20, 2015, the fair value of gold was based on the London PM Fix. The London PM Fix price for gold was set using the afternoon session of the twice daily fix of the price of gold by five market making members of the LBMA which occurred at approximately 3:00 p.m. London time, on each working day. The London PM Fix was discontinued on March 19, 2015.
Once the value of gold has been determined, the net asset value (the “NAV”) is computed by the Trustee by deducting all accrued fees, expenses and other liabilities of the Trust, including the remuneration due to the Sponsor (the “Sponsor’s Fee”), from the fair value of the gold and all other assets held by the Trust.
The Trust recognizes changes in fair value of the investment in gold as changes in unrealized gains or losses on investment in gold through the Statement of Operations.
The per Share amount of gold exchanged for a purchase or redemption is calculated daily by the Trustee, using the LBMA PM Gold Price to calculate the gold amount in respect of any liabilities for which covering gold sales have not yet been made, and represents the per Share amount of gold held by the Trust, after giving effect to its liabilities, to cover expenses and liabilities and any losses that may have occurred.
2.2. Valuation of Gold (continued)
Fair Value Hierarchy
Inputs
Generally accepted accounting principles establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
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Level 1.
Unadjusted quoted prices in active markets for identical assets or liabilities that the company has the ability to access.
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Level 2.
Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments and similar data.
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Level 3.
Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the company’s own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The investment in gold is classified as a level 2 asset, as the Trust’s investment in gold is calculated using primary market pricing sources supported by observable, verifiable inputs.
The categorization of the Trust’s assets is as shown below:
(Amounts in 000's of US$)
December 31, 2018
December 31, 2017
Level 2
Investment in gold
$ 822,113
$ 1,048,326
2.3. Gold Receivable and Payable
Gold receivable or payable represents the quantity of gold covered by contractually binding orders for the creation or redemption of Shares respectively, where the gold has not yet been transferred to or from the Trust’s account. Generally, for all orders accepted prior to September 5, 2017, ownership of the gold was transferred within three business days of the trade date, and for all orders accepted on or after September 5, 2017, ownership of the gold is transferred within two business days of the trade date.
2.4. Creations and Redemptions of Shares
The Trust expects to create and redeem Shares from time to time, but only in one or more Baskets (a Basket equals a block of 50,000 Shares). The Trust issues Shares in Baskets to Authorized Participants on an ongoing basis. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. An Authorized Participant is a person who (1) is a registered broker-dealer or other securities market participant such as a bank or other financial institution which is not required to register as a broker-dealer to engage in securities transactions; (2) is a participant in The Depository Trust Company; (3) has entered into an Authorized Participant Agreement with the Trustee and the Sponsor; and (4) has established an Authorized Participant Unallocated Account with the Trust’s Custodian or other gold bullion clearing bank. An Authorized Participant Agreement is an agreement entered into by each Authorized Participant, the Sponsor and the Trustee which provides the procedures for the creation and redemption of Baskets and for the delivery of the gold and any cash required for such creations and redemptions. An Authorized Participant Unallocated Account is an unallocated gold account, either loco London or loco Zurich, established with the Custodian or a gold bullion clearing bank by an Authorized Participant.
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 represented by the Baskets being created or redeemed, the amount of which is based on the combined NAV 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.
Authorized Participants may, on any business day, place an order with the Trustee to create or redeem one or more Baskets. Effective as of September 5, 2017, the typical settlement period for Shares is two business days. Prior to September 5, 2017, the typical settlement period was three business days. In the event of a trade date at period end, where a settlement is pending, a respective account receivable and/or payable will be recorded. When gold is exchanged in settlement of redemption, it is considered a sale of gold for financial statement purposes.
The amount of bullion represented by the Baskets created or redeemed can only be settled to the nearest 1/1000 th of an ounce. As a result, the value attributed to the creation or redemption of Shares may differ from the value of bullion to be delivered or distributed by the Trust. In order to ensure that the correct metal is available at all times to back the Shares, the Sponsor accepts an adjustment to its Sponsor’s Fee in the event of any shortfall or excess. For each transaction, this amount is not more than 1/1000 th of an ounce.
As the Shares of the Trust are subject to redemption at the option of Authorized Participants, the Trust has classified the outstanding Shares as Net Assets. Changes in Shares are presented in the Statement of Changes in Net Assets.
2.5. 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 Trust has adopted FASB ASC 740-10, Income Taxes . The Sponsor has evaluated the application of ASC 740-10 to the Trust, to determine whether or not there are uncertain tax positions in its major jurisdictions that require financial statement recognition. Based on this evaluation, the Sponsor has determined the Trust’s major jurisdictions to be where it is organized and where bullion is held. No uncertain tax positions have been identified. As a result, no income tax liability or expense has been recorded in the accompanying financial statements.
2.6. Investment in Gold
Changes in ounces of gold and the respective values for the years ended December 31, 2018 and 2017 are as follows:
Year
Year
Ended
Ended
(Amounts in 000's of US$, except for ounces data)
December 31, 2018
December 31, 2017
Ounces of gold
Opening balance
808,581.0
806,891.3
Creations
101,505.5
53,345.1
Redemptions
(265,666.8)
(48,472.0)
Transfers of gold to pay expenses
(2,970.6)
(3,183.4)
Closing balance
641,449.1
808,581.0
Investment in gold
Opening balance
$ 1,048,326
$ 935,268
Creations
132,781
67,119
Redemptions
(336,610)
(60,954)
Realized gain on gold distributed for the redemption of Shares
10,687
2,048
Transfers of gold to pay expenses
(3,796)
(3,966)
Realized gain on gold transferred to pay expenses
159
99
Change in unrealized (loss) / gain on investment in gold
(29,434)
108,712
Closing balance
$ 822,113
$ 1,048,326
2.7. Expenses / Realized Gains / Losses
The primary expense of the Trust is the Sponsor’s Fee, which is paid by the Trust through in-kind transfers of gold to the Sponsor.
The Trust will transfer gold to the Sponsor to pay the Sponsor’s Fee that, effective December 1, 2018, accrues daily at an annualized rate equal to 0.17 % of the adjusted daily NAV of the Trust, paid monthly in arrears. Prior to December 1, 2018, the Sponsor’s Fee accrued at an annualized rate equal to 0.39% of the adjusted daily NAV of the Trust.
The Sponsor has agreed to assume administrative and marketing expenses incurred by the Trust, including the Trustee’s monthly fee and out of pocket expenses, the Custodian’s fee and the reimbursement of the Custodian’s expenses, exchange listing fees, United States Securities and Exchange Commission (the “SEC”) registration fees, printing and mailing costs, audit fees and certain legal expenses.
For the year ended December 31, 2018 , the Sponsor’s Fee was $ 3,567,948 ( December 31, 2017 : $ 3,997,282 ; December 31, 2016 : $ 3,924,259) .
At December 31, 2018 , the fees payable to the Sponsor were $ 119,052 ( December 31, 2017 : $ 346,853 ).
With respect to expenses not otherwise assumed by the Sponsor, the Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust’s gold as necessary to pay these expenses. When selling gold to pay expenses, the Trustee will endeavor to sell the smallest amounts of gold needed to pay these expenses in order to minimize the Trust’s holdings of assets other than gold. Other than the Sponsor’s Fee, the Trust had no expenses during the years ended December 31, 2018, 2017 and 2016 .
Unless otherwise directed by the Sponsor, when selling gold the Trustee will endeavor to sell at the price established by the LBMA PM Gold Price. 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 PM Gold Price or such other publicly available price that the Sponsor deems fair, in each case as set following the sale order. A gain or loss is recognized based on the difference between the selling price and the cost of the gold sold. Neither the Trustee nor the Sponsor is liable for depreciation or loss incurred by reason of any sale.
Realized gains and losses result from the transfer of gold for Share redemptions and / or to pay expenses and are recognized on a trade date basis as the difference between the fair value and cost of gold transferred.
2.8. Subsequent Events
In accordance with the provisions set forth in FASB ASC 855-10, Subsequent Events , the Trust’s management has evaluated the possibility of subsequent events existing in the Trust’s financial statements through the filing date.
During this period, no material subsequent events requiring adjustment to or disclosure in the Trust’s financial statements were identified. |
