| Significant Accounting Policies | 2. Significant Accounting Policies
The preparation of financial statements in accordance with 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
At the Trust’s inception, the Sponsor determined that the Trust was not an investment company within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codificat ion (“ASC”) , Financial Services—Investment Companies (“Topic 946”). Consequently, the Trust did not prepare its financial statements applying standards applicable to investment companies in accordance with Topic 946, including recording its investment in Bullion at “fair value” as defined in Topic 946. Instead, the Trust recorded its investment in Bullion at the lower of cost or fair value in accordance with ASC 330, Inventory and ASC 270, Interim Reporting.
Following the release of FASB Accounting Standards Update (“ASU") 2013-08, Topic 946 : Amendments to the Scope, Measurement and Disclosure Requirements, the Sponsor has re-evaluated whether the Trust falls within scope and has concluded that for reporting purposes, the Trust is classified as an investment company effective January 1, 2014. 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.
As a result of the change in the evaluation of investment company status, the Trust must, from January 1, 2014, present its Bullion assets at “fair value” as defined in Topic 946.
The adoption of Topic 946 accounting changed the presentation of the Trust’s financial statements prospectively from January 1, 2014.
The quantitative effect of the adoption of investment company accounting is presented below:
Value at
Gain / (loss)
December 31, 2013
Value at
as a result of
at lower of cost
January 1, 2014
change in
(Amounts in 000's of US$)
or market value
at fair value
accounting principle
Bullion
Gold
$
$
$
-
Silver
$
$
$
-
Platinum
$
$
$
-
Palladium
$
$
$
2.2. Valuation of Bullion
The Trust follows the provisions of ASC 820, Fair Value Measurements ("ASC 820"). ASC 820 provides guidance for determining fair value and requires increased 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.
Bullion is held by JPMorgan Chase Bank, N.A. (the “Custodian”), on behalf of the Trust, at its London, England vaulting premises on a segregated basis. The allocated platinum and palladium may also be held by UBS A.G., or any other firm selected by the Custodian to hold the Trust’s platinum and palladium in the Trust’s allocated account in the firm’s Zurich, Switzerland vault premises on a segregated basis and whose appointment has been approved by the Sponsor, (the “Zurich Sub-Custodian”). The Trust’s Bullion is recorded, per individual metal type, at fair value. The cost of Bullion is determined according to the average cost method and the fair value is based on the relevant “London Metal Price” for each metal held by the Trust. This is the applicable “ London Bullion Market Association (“LBMA”) PM Gold Price ” for gold of the price of an ounce of gold, the “London Silver Price” for silver and for platinum and palladium the applicable “ London Metal Exchange (“LME”) PM Pric e”.
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 settle trades in US Dollars, Euros or British Pounds for LBMA authorized participating gold bullion banks or market makers (“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 London Bullion Market Association which occurred at approximately 3:00 PM London time, on each working day. The London PM Fix was discontinued on March 19, 2015.
Since December 1, 2014, the LME has been responsible for the administration of the electronic platinum and palladium bullion price fixing system (“LMEbullion”) that replicates electronically the manual London platinum and palladium fixing processes previously employed by the London Platinum and Palladium Fixing Company Ltd (“LPPFCL”) as well as providing electronic market clearing processes for platinum and palladium bullion transactions at the fixed prices established by the LME pricing mechanism. LMEBullion , like the previous London platinum and palladium fix processes, establishes and publishes fixed prices for troy ounces of platinum and palladium twice each London trading day during fixing sessions beginning at 9:45 a.m. London time (the LME AM Fix) and 2:00 p.m. London time (the LME PM Fix).
Prior to December 1, 2014, the Trust utilized the London PM Fix as its benchmark for valuation purposes. The London PM Fix for platinum and palladium was the price of an ounce of platinum or palladium (respectively) as set by four fixing members of the London Platinum and Palladium Market (“LPPM”) at approximately 2:00 PM, London time, on each working day and was widely accepted among platinum and palladium market participants. The London PM Fix was discontinued on November 30, 2014.
Since August 15, 2014, CME Group, Inc. has been conducting an electronic, over-the-counter silver bullion auction in London, England to establish a fixing price for an ounce of silver once each trading day, which is disseminated by Thomson Reuters (the “London Silver Price”). The London Silver Price is established by the five LBMA-authorized bullion banks and market makers participating in the auction. The “London Metal Price” for silver held by the Trust is the London Silver Price.
Prior to August 15, 2014, the Trust utilized the “London Fix” for silver as its benchmark for silver valuation purposes. The London Fix for silver, which London Silver Market Fixing Ltd. discontinued on August 14, 2014, was the price of an ounce of silver as set by three market making members of the LBMA at approximately 12:00 noon, London time, on each London business day and was widely accepted among silver market participants.
2.2. Valuation of Bullion (Continued)
Once the value of Bullion 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 Bullion and all other assets held by the Trust.
The Trust recognizes changes in fair value of the investment in Bullion as changes in unrealized gains or losses on investment in Bullion through the Condensed Statement of Operations .
The per Share amount of Bullion exchanged for a purchase or redemption is calculated daily by the Trustee, using the London Metal Price for each metal held by the Trust to calculate the Bullion amount in respect of any liabilities for which covering Bullion sales have not yet been made, and represents the per Share amount of Bullion held by the Trust, after giving effect to its liabilities, to cover expenses and liabilities and any losses that may have occurred.
Fair Value Hierarchy
ASC 820 establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
Level 1.
Unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access.
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.
Level 3.
Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Trust’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 Bullion is classified as a level 2 asse t, as the Trust’s investment in Bullion is calculated using third party pricing sources supported by observable, verifiable inputs.
The categorization of the Trust’s assets is as shown below:
(Amounts in 000's of US$)
June 30, 2015
December 31, 2014
Level 2
Investment in Bullion
$
$
There were no transfers between levels during the period ended June 30, 2015 or the year ended December 31, 2014 .
2.3. Bullion Receivable and Payable
Bullion receivable or payable represents the quantity of Bullion covered by contractually binding orders for the creation or redemption of Shares respectively, where the Bullion has not yet been transferred to or from the Trust’s account. Generally, ownership of the Bullion is transferred within three business days of the trade date.
2.4. Creations and Redemptions of Shares
The Trust’s contractual obligation is to create or redeem Baskets with Authorized Participants (as defined below) at set prices on each trading day. These prices are based on an agreed formula published in the prospectus, which is equal to the NAV of the Trust. The Trust expects to create and redeem Shares from time to time, but only in one or more Baskets. 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 or entity 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 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 Bullion required for such creations and redemptions. An Authorized Participant Unallocated Account is an unallocated Bullion account, either loco London or loco Zurich, established with the Custodian or a 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 Bullion 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.
The amount of Bullion represented by the Baskets created or redeemed can only be settled to the nearest 1/1000 th of an ounce per individual metal type. 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 amount of Bullion is available at all times to back the Shares, the Sponsor accepts an adjustment to its management fees in the event of any shortfall or excess. For each transaction, this amount is not more than 1/1000 th of an ounce per individual metal type.
Authorized Participants may, on any business day, place an order with the Trustee to create or redeem one or more Baskets. The typical settlement period for Shares is 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 Bullion is exchanged in settlement of a redemption, it is considered a sale of Bullion for financial statement purposes.
The Shares of the Trust are classified as “Redeemable Shares” for financial statement purposes, since they are subject to redemption at the option of Authorized Participants. Outstanding Shares are reflected at redemption value, which represents the maximum obligation (based on NAV per Share), with the difference from historical cost recorded as an offsetting amount to retained earnings. When Bullion is exchanged in settlement of a redemption, a realized gain or loss in the amount of the difference between the fair value on the trade date and the historical cost is recorded through the Condensed Statement of Operations.
2.5. Income Taxes
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 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 and December 31, 2014 .
2.6. Investment in Bullion
Changes in ounces of Bullion and the ir respective values for the six months ended June 30, 2 015 and for the year ended December 31, 2014 are set out below:
(Amounts in 000's of US$, except for ounces data)
Six Months Ended June 30, 2015
Ounces of Bullion
Gold
Silver
Platinum
Palladium
Total
Opening balance
Creations
Redemptions
Transfers of Bullion to pay expenses
Closing balance
Investment in Bullion
Opening balance
$
$
$
$
$
Creations
Redemptions
Realized gain / (loss) on Bullion distributed for the redemption of Shares
Transfers of Bullion to pay expenses
Realized gain / (loss) on Bullion transferred to pay expenses
Change in unrealized (loss) / gain on investment in Bullion
Closing balance
$
$
$
$
$
(Amounts in 000's of US$, except for ounces data)
Year Ended December 31, 2014
Ounces of Bullion
Gold
Silver
Platinum
Palladium
Total
Opening balance
Creations
Redemptions
Transfers of Bullion to pay expenses
Closing balance
Investment in Bullion
Opening balance
$
$
$
$
$
Creations
Redemptions
Realized gain / (loss) on Bullion distributed for the redemption of Shares
Transfers of Bullion to pay expenses
Realized gain / (loss) on Bullion transferred to pay expenses
Change in unrealized gain / (loss) on investment in Bullion
Closing balance
$
$
$
$
$
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 Bullion to the Sponsor.
The Trust will transfer Bullion to the Sponsor to pay the Sponsor’s Fee that will accrue daily at an annualized rate equal to 0.60 % of the adjusted net asset value (the “ANAV”) of the Trust, paid monthly in arrears.
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 three months ended June 30, 2015 and 2014 the Sponsor’s Fee was $ 220,368 and $ 277,000 , respectively. For the six months ended June 30, 2015 and 2014 the Sponsor’s Fee was $502,597 and $588,080 , respectively.
At June 30, 2015 and at December 31, 2014 , the fees payable to the Sponsor were $ 71,422 and $ 86,196 , respectively.
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 Bullion as necessary to pay these expenses. When selling Bullion to pay expenses, the Trustee will endeavor to sell the smallest amounts of Bullion needed to pay these expenses in order to minimize the Trust’s holdings of assets other than Bullion. Other than the Sponsor’s Fee, the Trust had no expenses during the three months ended June 30, 2015 and 2014 and the six months ended June 30, 2015 and 2014 .
Unless otherwise directed by the Sponsor, when selling Bullion the Trustee will endeavor to sell at the price established by the London Metal Price for each metal held by the Trust. 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 Bullion only if the sale transaction is made at the London Metal Price for each metal held by the Trust used by the Trustee to value the Trust’s Bullion. A gain or loss is recognized based on the difference between the selling price and the cost of the Bullion sold. Neither the Trustee nor the Sponsor is liable for depreciation or loss incurred by reason of any sale.
Realized gains / losses result from the transfer of Bullion for Share redemptions and / or to pay expenses and realized gains / losses are recognized on a trade date basis using cost.
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 financial statements were identified. |
