TABLE OF
CONTENTS
PART I
Item 1. Business
The purpose
of the GraniteShares Gold Trust (the “Trust”) is to own gold transferred to the
Trust in exchange for shares issued by the Trust (“Shares”). Each Share
represents a fractional undivided beneficial interest in and ownership of the
Trust. The assets of the Trust are anticipated to consist solely of gold
bullion. The Trust was formed on August 24, 2017 when an initial deposit of gold
was made in exchange for the issuance of two Baskets (a “Basket” consists of
50,000 Shares).
The sponsor
of the Trust is GraniteShares LLC (the “Sponsor”). The trustee of the Trust is
The Bank of New York Mellon (the “Trustee”) and the custodian is ICBC Standard
Bank (the “Custodian”).
The Trust’s
Shares at redeemable value decreased from US$ 1,009,450,266 on June 30, 2021 to
US$ 996,127,089 on June 30, 2022, the Trust’s fiscal year end. The Outstanding
Shares in the Trust decreased from 57,650,000 Shares on June 30, 2021 to
55,300,000 Shares on June 30, 2022.
The Trust is
not managed like a corporation or an active investment vehicle. The Trust has no
directors, officers or employees. It does not engage in any activities designed
to obtain a profit from or to improve the losses caused by changes in the price
of gold. The gold held by the Trust will only be delivered to pay the
remuneration due to the Sponsor (the “Sponsor’s Fee”), distributed to Authorized
Participants (defined under Item 7) in connection with the redemption of Baskets
or sold (1) on an as-needed basis to pay Trust expenses not assumed by the
Sponsor, (2) in the event the Trust terminates and liquidates its assets, or (3)
as otherwise required by law or regulation.
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. The Trust does not and will not
hold or trade in commodities futures contracts regulated by the Commodity
Exchange Act (the “CEA”), as administered by the Commodity Futures Trading
Commission (the “CFTC”). The Trust is not a commodity pool for purposes of the
CEA and neither the Sponsor nor the Trustee is subject to regulation as a
commodity pool operator or a commodity trading advisor in connection with the
Shares. The Trust has no fixed termination date.
The Sponsor
of the registrant maintains an Internet website at www.graniteshares.com,
through which the registrant’s annual reports on Form 10-K, quarterly reports on
Form 10-Q, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, are made available free of charge as soon as reasonably
practicable after they have been filed or furnished to the Securities and
Exchange Commission (the “SEC”). Additional information regarding the Trust may
also be found on the SEC’s EDGAR database at www.sec.gov.
Trust Objective
The
objective of the Trust is for the value of the Shares to reflect, at any given
time, the value of the assets owned by the Trust at that time less the Trust’s
accrued expenses and liabilities as of that time. The Shares are intended to
constitute a simple and cost-effective means of making an investment similar to
an investment in gold. An investment in allocated physical gold bullion requires
expensive and sometimes complicated arrangements in connection with the assay,
transportation and warehousing of the metal. Traditionally, such expense and
complications have resulted in investments in physical gold bullion being
efficient only in amounts beyond the reach of many investors. The Shares have
been designed to remove the obstacles represented by the expense and
complications involved in an investment in physical gold bullion, while at the
same time having an intrinsic value that reflects, at any given time, the price
of the assets owned by the Trust at such time less the Trust expenses and
liabilities. Although the Shares are not the exact equivalent of an investment
in gold, they provide investors with an alternative that allows a level of
participation in the gold market through the securities market.
Advantages
of investing in the Shares include:
Minimal
credit risk.
The Shares
are backed primarily by allocated physical gold bullion identified as the
Trust’s property in the Custodian’s books. The Trust arrangements contemplate
that no Shares can be issued unless the corresponding amount of gold has been
deposited into the Trust. Once deposited into the Trust, gold is only removed
from the Trust if (i) sold to pay Trust expenses (such as the Sponsor’s Fee and
any other expenses not assumed by the Sponsor) or liabilities to which the Trust
may be subject, or (ii) transferred from the Trust’s account to an Authorized
Participant’s account in exchange for one or more Baskets of Shares surrendered
for redemption.
Ease and
flexibility of investment.
Retail
investors may purchase and sell Shares through traditional brokerage accounts.
Because the amount of gold corresponding to a Share is significantly less than
the minimum amounts of physical gold bullion that are commercially available for
investment purposes, the cash outlay necessary for an investment in Shares
should be less than the amount required for currently existing means of
investing in physical gold bullion. Shares are eligible for margin
accounts.
Relatively
cost efficient.
Although the
return, if any, of an investment in the Shares is subject to the additional
expenses of the Trust, including the Sponsor’s Fee, the Trustee’s Fee, the
Custodian’s Fee, and to other costs and expenses not assumed by the Sponsor
which would not be incurred in the case of a direct investment in gold, the
Shares may represent a cost-efficient alternative for investors not otherwise in
a position to participate directly in the market for allocated physical gold
bullion, because the expenses involved in an investment in allocated physical
gold bullion through the Shares are dispersed among all holders of
Shares.
Description of the Gold Industry
Introduction
This section
provides a brief introduction to the gold industry by looking at some of the key
participants, detailing the primary sources of demand and supply and outlining
the role of the “official” sector (i.e., central banks) in the
market.
Market
Participants
The
participants in the world gold industry may be classified in the following
sectors: the mining and producer sector, the banking sector, the official
sector, the investment sector, and the manufacturing sector. A brief description
of each follows.
The Mining and Producer
Sector
This group
includes mining companies that specialize in gold and silver production; mining
companies that produce gold as a by-product of other production (such as a
copper or silver producer); scrap merchants and recyclers.
The Banking Sector
Bullion
banks provide a variety of services to the gold market and its participants,
thereby facilitating interactions between other parties. Services provided by
the bullion banking community include traditional banking products as well as
mine financing, physical gold purchases and sales, hedging and risk management,
inventory management for industrial users and consumers, and gold deposit and
loan instruments.
The Official Sector
The official
sector encompasses the activities of the various central banking operations of
gold-holding countries. Having been a source of gold supply for many years, the
official sector became a source of net demand in 2010. The prominence given by
market commentators to this activity coupled with the total amount of gold held
by the official sector has resulted in this area being a significant shift in
the gold market.
The Investment Sector
This sector
includes the investment and trading activities of both professional and private
investors and speculators. These participants range from large hedge and mutual
funds to day-traders on futures exchanges and retail-level coin
collectors.
The Manufacturing
Sector
The
fabrication and manufacturing sector represents all the commercial and
industrial users of gold for whom gold is a daily part of their business. The
jewelry industry is a large user of gold. Other industrial users of gold include
the electronics and dental industries.
World
Gold Supply and Demand (2011-2021)
The
following table sets forth a summary of the world gold supply and demand from
2010 to 2021:
In
tonnes(1) |
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
Supply |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine production |
|
|
2,876.9 |
|
|
|
2,957.2 |
|
|
|
3,166.8 |
|
|
|
3,270.5 |
|
|
|
3,366.3 |
|
|
|
3,517.3 |
|
|
|
3,567.8 |
|
|
|
3,653.6 |
|
|
|
3,596.2 |
|
|
|
3,476.9 |
|
|
|
3,580.9 |
|
Net producer hedging |
|
|
22.5 |
|
|
|
-45.3 |
|
|
|
-27.9 |
|
|
|
104.9 |
|
|
|
12.9 |
|
|
|
37.6 |
|
|
|
-25.5 |
|
|
|
-11.6 |
|
|
|
6.2 |
|
|
|
-39.1 |
|
|
|
-20.7 |
|
Recycled gold |
|
|
1,626.1 |
|
|
|
1,637.1 |
|
|
|
1,197.0 |
|
|
|
1,131.5 |
|
|
|
1,069.6 |
|
|
|
1,232.7 |
|
|
|
1,110.4 |
|
|
|
1,129.9 |
|
|
|
1,273.5 |
|
|
|
1,291.3 |
|
|
|
1,143.5 |
|
Total
supply |
|
|
4,525.5 |
|
|
|
4,549.0 |
|
|
|
4,335.9 |
|
|
|
4,506.9 |
|
|
|
4,448.8 |
|
|
|
4,785.8 |
|
|
|
4,652.7 |
|
|
|
4,771.8 |
|
|
|
4,876.2 |
|
|
|
4,729.2 |
|
|
|
4,703.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabrication |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jewellery1 |
|
|
2,068.0 |
|
|
|
2,129.8 |
|
|
|
2,735.3 |
|
|
|
2,544.4 |
|
|
|
2,479.2 |
|
|
|
2,018.8 |
|
|
|
2,257.5 |
|
|
|
2,290.0 |
|
|
|
2,153.1 |
|
|
|
1,329.7 |
|
|
|
2,229.4 |
|
Technology |
|
|
429.1 |
|
|
|
382.3 |
|
|
|
355.8 |
|
|
|
348.4 |
|
|
|
331.7 |
|
|
|
323.0 |
|
|
|
332.6 |
|
|
|
334.8 |
|
|
|
326.0 |
|
|
|
302.8 |
|
|
|
330.2 |
|
Investment |
|
|
1,746.8 |
|
|
|
1,591.4 |
|
|
|
793.2 |
|
|
|
932.2 |
|
|
|
978.0 |
|
|
|
1,654.7 |
|
|
|
1,309.6 |
|
|
|
1,173.3 |
|
|
|
1,274.9 |
|
|
|
1,769.7 |
|
|
|
1,006.4 |
|
Central bank & other inst. |
|
|
480.8 |
|
|
|
569.2 |
|
|
|
629.5 |
|
|
|
601.1 |
|
|
|
579.6 |
|
|
|
394.9 |
|
|
|
378.6 |
|
|
|
656.2 |
|
|
|
605.4 |
|
|
|
255.0 |
|
|
|
455.7 |
|
Gold demand |
|
|
4,724.8 |
|
|
|
4,684.7 |
|
|
|
4,513.7 |
|
|
|
4,426.1 |
|
|
|
4,368.5 |
|
|
|
4,391.3 |
|
|
|
4,278.2 |
|
|
|
4,454.4 |
|
|
|
4,359.3 |
|
|
|
3,657.2 |
|
|
|
4,021.6 |
|
OTC and other |
|
|
-199.3 |
|
|
|
-123.6 |
|
|
|
-177.9 |
|
|
|
80.8 |
|
|
|
80.4 |
|
|
|
396.3 |
|
|
|
374.5 |
|
|
|
317.5 |
|
|
|
516.8 |
|
|
|
1,072.0 |
|
|
|
682.0 |
|
Total
demand |
|
|
4,525.5 |
|
|
|
4,549.0 |
|
|
|
4,335.9 |
|
|
|
4,506.9 |
|
|
|
4,448.8 |
|
|
|
4,787.6 |
|
|
|
4,278.2 |
|
|
|
4,771.8 |
|
|
|
4,876.2 |
|
|
|
4,729.2 |
|
|
|
4,703.6 |
|
LBMA Gold Price
(US$/oz) |
|
|
1,571.52 |
|
|
|
1,668.98 |
|
|
|
1,411.23 |
|
|
|
1,266.40 |
|
|
|
1,160.06 |
|
|
|
1,250.80 |
|
|
|
1,257.15 |
|
|
|
1,268.49 |
|
|
|
1,392.60 |
|
|
|
1769.59 |
|
|
|
1,798.61 |
|
Note:
|
Totals
may not add due to independent rounding. Net producer hedging is the
change in the physical market impact of mining companies’ gold loans,
forwards and options positions. |
|
|
(1)
|
“Tonne”
refers to one metric ton. This is equivalent to 1,000 kilograms or
32,150.7465 troy ounces. |
Source:
Gold Demand Trends 2022 Statistics, World Gold Council
Historical
Chart of the Price of Gold
The price of
gold is volatile, and its fluctuations are expected to have a direct impact on
the value of the Shares. However, movements in the price of gold in the past,
and any past or present trends, are not a reliable indicator of future
movements. Movements may be influenced by various factors, including
announcements from central banks regarding a country’s reserve gold holdings,
agreements among central banks, fluctuations in the value of the U.S. dollar,
political uncertainties around the world, and economic concerns.
The
following chart illustrates the changes in the gold spot prices from July 2010
through June 2021:
Source:
Bloomberg and GraniteShares
Operation of the Gold Market
The global
trade in gold consists of Over-the-Counter (“OTC”) transactions in spot,
forwards, and options and other derivatives, together with exchange-traded
futures and options.
Over-the-Counter
Market
The OTC gold
market includes spot, forward, and option and other derivative transactions
conducted on a principal-to-principal basis. While this is a global, nearly
24-hour per day market, its main centers are London, New York and
Zurich.
Most OTC
market trades are cleared through London. The LBMA plays an important role in
setting OTC gold trading industry standards. A London Good Delivery Bar (as
described below), which is acceptable for settlement of any OTC transaction,
will be acceptable for delivery to the Trust in connection with the issuance of
Baskets.
Futures
Exchanges
Futures
exchanges seek to provide a neutral, regulated marketplace for the trading of
derivatives contracts for commodities, such as futures, options and certain
swaps. The terms of these contracts are defined by an exchange for each
commodity. For each commodity traded, the contract specifies the precise
commodity quality and quantity standards, as well as the location and timing of
physical delivery for the reference physical commodity, although only a very
small number of these contracts result in the actual commodity
delivery.
An exchange
does not buy or sell those contracts, but seeks to offer a transparent forum
where members, on their own behalf or on the behalf of customers, can trade the
contracts in a safe, efficient and orderly manner. The futures and options
contracts, as well as some swaps, are cleared through a derivatives clearing
organization which ensures more accurate valuation of positions in these
contracts as well as settlement of trades in these contracts.
The most
significant gold futures exchange in the U.S. is COMEX, operated by Commodities
Exchange, Inc., a subsidiary of New York Mercantile Exchange, Inc., and a
subsidiary of the Chicago Mercantile Exchange Group (the “CME Group”). Other
commodity exchanges include the Tokyo Commodity Exchange (“TOCOM”), the Multi
Commodity Exchange Of India (“MCX”), the Shanghai Futures Exchange, ICE Futures
US (the “ICE”), and the Dubai Gold & Commodities Exchange.
Exchange
Regulation
In addition
to the public nature of the pricing, futures exchanges in the United States are
regulated at two levels, internal and external governmental supervision. The
internal is performed through self-regulation as self-regulatory organizations
and consists of regular monitoring of the trading process to ensure that it is
conducted in conformance with all exchange rules; the financial condition of all
exchange member firms to ensure that they continuously meet financial
commitments; and the positions of commercial and non-commercial customers to
ensure that physical delivery and other commercial commitments can be met, and
that pricing is not being improperly affected by the size of any particular
customer positions. External governmental oversight is performed by the CFTC,
which reviews all the rules and regulations of United States futures exchanges
and monitors their enforcement. The CFTC oversees the operation of the U.S.
commodity futures markets, including COMEX and ICE Futures US. One of the
principal public policy objectives of the Commodity Exchange Act is to ensure
the integrity of the markets it oversees and the reliability of the prices of
trades on those markets. The Commodity Exchange Act and CFTC require futures
exchanges to ensure compliance with core principles applicable to designated
contract markets to have rules and procedures to prevent market manipulation,
abusive trade practice and fraud, and the CFTC conducts regular review of the
markets’ rule enforcement programs. Other local regulators enforce their own
regulations governing trading platforms and futures exchanges located in their
jurisdictions.
The
London Bullion Market
Most trading
in physical gold is conducted on the OTC market, predominantly in London. The
LBMA coordinates various OTC-market activities, including clearing and vaulting,
acts as the principal intermediary between physical gold market participants and
the relevant regulators, promotes good trading practices and develops standard
market documentation. In addition, the LBMA promotes refining standards for the
gold market by maintaining the “London Good Delivery List,” which identifies
refiners of gold that have been approved by the LBMA.
In the OTC
market, gold bars that meet the specifications for weight, dimensions, fineness
(or purity), identifying marks (including the assay stamp of an LBMA-acceptable
refiner) and appearance described in “The Good Delivery Rules for Gold and
Silver Bars” published by the LBMA are referred to as “London Good Delivery
Bars.” A London Good Delivery Bar (typically called a “400 ounce bar”) must
contain between 350 and 430 fine troy ounces of gold (1 troy ounce = 31.1034768
grams), with a minimum fineness (or purity) of 995 parts per 1000 (99.5%), be of
good appearance and be easy to handle and stack. The fine gold content of a gold
bar is calculated by multiplying the gross weight of the bar (expressed in units
of 0.025 troy ounces) by the fineness of the bar. A London Good Delivery Bar
must also bear the stamp of one of the refiners identified on the London Good
Delivery List.
London
Market Regulation
Following
the enactment of the Financial Markets Act 2012, the Prudential Regulation
Authority of the Bank of England is responsible for regulating most of the
financial firms that are active in the bullion market, and the Financial Conduct
Authority is responsible for consumer and competition issues. Trading in spot,
forwards and wholesale deposits in the bullion market is subject to the
Non-Investment Products Code adopted by market participants.
Not a
Regulated Commodity Pool
The Trust
does not trade in gold futures, options or swap contracts on any futures
exchange or over the counter. The Trust takes delivery of gold that complies
with the LBMA gold delivery rules. Because the Trust does not trade in gold
futures, options or swap contracts on any futures exchange or OTC, the Trust is
not regulated by the CFTC or the NFA under the Commodity Exchange Act as a
“commodity pool,” and is not required to be operated by a CFTC-regulated
commodity pool operator or advised by a commodity trading advisor. Investors in
the Trust do not receive the regulatory protections afforded to investors in
commodity pools operated by registered commodity pool operators, nor may any
futures exchange or the NFA enforce its rules with respect to the Trust’s
activities. In addition, investors in the Trust do not benefit from the
protections afforded to investors in gold futures, options or swaps contracts on
regulated futures exchanges or OTC.
Other
Methods of Investing in Gold
The Trust
competes with other financial vehicles, including traditional debt and equity
securities issued by companies in the gold industry and other securities backed
by or linked to gold, direct investments in gold and investment vehicles similar
to the Trust.
Secondary Market Trading
While the
Trust seeks to reflect generally the performance of the price of gold less the
Trust’s expenses and liabilities, Shares may trade at, above or below their NAV.
The NAV of Shares will fluctuate with changes in the market value of the Trust’s
assets. The trading prices of Shares will fluctuate in accordance with changes
in their NAV as well as market supply and demand. The amount of the discount or
premium in the trading price relative to the NAV may be influenced by
non-concurrent trading hours between the major gold markets and the Exchange.
While the Shares trade on the Exchange until 4:00 p.m. (New York time),
liquidity in the market for gold may be reduced after the close of the major
world gold markets, including London, Zurich and COMEX. As a result, during this
time, trading spreads, and the resulting premium or discount, on Shares may
widen. However, given that Baskets of Shares can be created and redeemed in
exchange for the underlying amount of gold, the Sponsor believes that the
arbitrage opportunities may provide a mechanism to mitigate the effect of such
premium or discount.
Valuation of Gold; Computation of Net Asset Value
On each
business day, as soon as practicable after 4:00 p.m. (New York time), the
Trustee evaluates the gold held by the Trust and determines the net asset value
of the Trust and the NAV. For purposes of making these calculations, a business
day means any day other than a day when the Exchange is closed for regular
trading.
The Trustee
values the gold held by the Trust using that day’s LBMA Gold Price PM. LBMA Gold
Price PM is the price per fine troy ounce of gold, stated in U.S. dollars,
determined by IBA following one or more 30-second electronic auctions conducted
starting at 3:00 p.m. (London time), on each day that the London gold market is
open for business, and announced by the LBMA shortly thereafter. If there is no
LBMA Gold Price PM on any day, the Trustee is authorized to use the LBMA Gold
Price AM announced on that day. If neither price is available for that day, the
Trustee will value the Trust’s gold based on the most recently announced LBMA
Gold Price PM or LBMA Gold Price AM. If the Sponsor determines that such price
is inappropriate to use, the Sponsor will identify an alternate basis for
evaluation to be employed by the Trustee. Further, the Sponsor may instruct the
Trustee to use on an on-going basis a different publicly available price which
the Sponsor determines to fairly represent the commercial value of the Trust’s
gold. Neither the Trustee nor the Sponsor are liable to any person for the
determination that the most recently announced LBMA Gold Price PM (or other
benchmark price) is not appropriate as a basis for evaluation of the gold held
or receivable by the Trust or for any determination as to the alternative basis
for evaluation, provided that such determination is made in good
faith.
On each day
that the LBMA Gold Price PM is to be determined, a price for the first round of
auction (and any round thereafter) is set by a chairperson appointed by IBA,
based on a set of rules and taking into account relevant pricing information
available at the time, and made publicly available in advance of the auction.
Beginning at 3:00 p.m. (London time), the direct participants pre-qualified by
IBA and their sponsored clients are allowed, but not required, to electronically
submit during a 30-second period buy and/or sell orders for spot transactions in
gold at the pre-determined price. If at the conclusion of the 30-second round
the market is determined by IBA to be balanced, the price determined by a
chairperson for that round is the LBMA Gold Price PM for that day and announced
as such by the LBMA. If the market is not balanced at the end of the first
auction, a chairperson will revise the starting price, and an additional
30-second auction is held at the new price. If necessary, the process is
repeated until the market is determined to be balanced and the price at which
that determination occurs is the LBMA Gold Price PM for that date. For these
purposes, the market is considered to be balanced when, at the end of an
auction, the total number of ounces of gold for which buy orders were submitted
in that auction falls within a certain pre-determined margin of tolerance from
the total number of ounces of gold for which sell orders were submitted in the
auction. Once the LBMA Gold Price PM has been determined for a given day, the
buy and sell orders entered by the auction participants during the last auction
will be executed at that day’s LBMA Gold Price PM. Any market imbalance
remaining after the last auction (which must be within the margin of tolerance)
is allocated equally among all participants (and not only those participating in
any auction held on that date). IBA reserves a right to limit the allocation of
any market imbalance on any date only among participants that have entered an
order during an auction on that date.
Once the
value of the Trust’s gold has been determined, the Trustee subtracts all accrued
fees, expenses and other liabilities of the Trust from the total value of the
gold and all other assets of the Trust. The resulting figure is the net asset
value of the Trust. The Trustee determines the NAV per Share by dividing the net
asset value of the Trust by the number of Shares outstanding at the time the
computation is made. Any estimate of the accrued but unpaid fees, expenses and
liabilities of the Trust for purposes of computing the net asset value of the
Trust and NAV per Share of the Trust made by the Trustee in good faith shall be
conclusive upon all persons interested in the Trust.
Trust Expenses
The Trust’s
only ordinary recurring expense is expected to be the Sponsor’s Fee. In exchange
for the Sponsor’s Fee, the Sponsor has agreed to assume the following expenses
incurred by the Trust: The Trustee’s Fee and its ordinary out-of-pocket
expenses, the Custodian’s Fee and its reimbursable expenses, the Exchange
listing fees, SEC registration fees, marketing expenses, printing and mailing
costs, audit fees and expenses and up to $100,000 per annum in legal fees and
expenses.
The
Sponsor’s Fee is accrued daily at an annualized rate equal to 0.1749% of the net
asset value of the Trust and is payable monthly in arrears. The Sponsor may, at
its discretion and from time to time, waive all or a portion of the Sponsor’s
Fee for stated periods of time. The Sponsor is under no obligation to waive any
portion of its fees and any such waiver shall create no obligation to waive any
such fees during any period not covered by the waiver. Presently, the Sponsor
does not intend to waive any part of its fee. Furthermore, the Sponsor may, in
its sole discretion, agree to rebate all or a portion of the Sponsor’s Fee
attributable to Shares held by certain institutional investors subject to
minimum Share holding and lock up requirements as determined by the Sponsor to
foster stability in the Trust’s asset levels. Any such rebate will be subject to
negotiation and written agreement between the Sponsor and the investor on a case
by case basis. The Sponsor is under no obligation to provide any rebates of the
Sponsor’s Fee. Neither the Trust nor the Trustee will be a party to any
Sponsor’s Fee rebate arrangements negotiated by the Sponsor. Any Sponsor’s Fee
rebate shall be paid from the funds of the Sponsor and not from the assets of
the Trust.
The
Sponsor’s Fee will be paid through delivery of gold from the Trust Unallocated
Account that has been de-allocated from the Trust Allocated Account for this
purpose. The Trustee will, when directed by the Sponsor, and, in the absence of
such direction, may, in its discretion, sell gold in such quantity and at such
times, as may be necessary to permit payment of the Trust expenses or
liabilities not assumed by the Sponsor. The Trustee will endeavor to sell gold
at such times and in the smallest amounts required to permit such payments as
they become due, it being the intention to avoid or minimize the Trust’s
holdings of assets other than gold. Accordingly, the amount of gold to be sold
will vary from time to time depending on the level of the Trust’s expenses and
the market price of gold. The Custodian may, but is not required to purchase
gold needed to cover Trust expenses provided that if the Trustee’s instruction
to sell gold is received by the Custodian by 2:00 p.m. (London time), the
purchase price for the gold will be that day’s LBMA Gold Price PM (or other
applicable benchmark price), and if the Trustee’s instruction to sell gold is
received by the Custodian after 2:00 p.m. (London time), the purchase price will
be the next LBMA Gold Price PM (or other applicable benchmark price) available
after that day.
Cash held by
the Trustee pending payment of the Trust’s expenses will not bear any interest.
Each sale of gold by the Trust will be a taxable event to Shareholders for
federal income tax purposes. See “United States Federal Income Tax
Consequences—Taxation of U.S. Shareholders.”
The
Sponsor’s Fee for the fiscal year ended June 30, 2022 was $1,726,901.
Deposit of Gold; Issuance of Baskets
The Trust
creates and redeems Shares on a continuous basis but only in Baskets of 50,000
Shares. Upon the deposit of the corresponding amount of gold with the Custodian,
and the payment of the Trustee’s applicable fee and of any expenses, taxes or
charges (such as stamp taxes or stock transfer taxes or fees), the Trustee will
deliver the appropriate number of Baskets to the DTC account of the depositing
Authorized Participant. Only Authorized Participants can deposit gold and
receive Baskets of Shares in exchange. As of the date of this prospectus, J.P.
Morgan Securities LLC, Merrill Lynch Professional Clearing Corp., Morgan Stanley
& Co. LLC, and Virtu Americas LLC are the Authorized Participants. The
Sponsor and the Trustee maintain a current list of Authorized Participants. Gold
allocated by the Custodian to the Trust Allocated Account must meet the London
Good Delivery Standards.
Before
making a deposit, the Authorized Participant must deliver to the Trustee a
written purchase order indicating the number of Baskets it intends to acquire.
The Trustee will acknowledge the purchase order unless it or the Sponsor decides
to refuse the purchase order as permitted by the Trust Agreement. The date the
Trustee receives that order determines the Basket Amount the Authorized
Participant needs to deposit. However, orders received by the Trustee after 3:59
p.m. (New York time) on a business day or on a business day when the LBMA Gold
Price PM or other applicable benchmark price is not announced, will not be
accepted.
If the
Trustee accepts the purchase order, it transmits to the Authorized Participant,
via facsimile or electronic mail message, no later than 5:30 p.m. (New York
time) on the date such purchase order is received, or deemed received, a copy of
the purchase order endorsed “Accepted” by the Trustee and indicating the Basket
Amount that the Authorized Participant must deliver to the Custodian at the
Trust Unallocated Account loco London in exchange for each Basket. Prior to the
Trustee’s acceptance as specified above, a purchase order only represents the
Authorized Participant’s unilateral offer to deposit gold in exchange for
Baskets of Shares and has no binding effect upon the Trust, the Trustee, the
Custodian or any other party.
The Basket
Amount necessary for the creation of a Basket changes from day to day. On each
day that the Exchange is open for regular trading, the Trustee adjusts the
quantity of gold constituting the Basket Amount as appropriate to reflect sales
of gold, any loss of gold that may occur, and accrued expenses. The computation
is made by the Trustee as promptly as practicable after 4:00 p.m. (New York
time). See “The Trust—Valuation of Gold; Computation of Net Asset Value” for a
description of how the LBMA Gold Price PM is determined, and description of how
the Trustee determines the NAV. The Trustee determines the Basket Amount for a
given day by dividing the number of Fine Ounces of gold held by the Trust as of
the opening of business on that business day, adjusted for the amount of gold
constituting estimated accrued but unpaid fees and expenses of the Trust as of
the opening of business on that business day, by the quotient of the number of
Shares outstanding at the opening of business divided by 50,000. Fractions of a
Fine Ounce of gold smaller than 0.001 Fine Ounce are disregarded for purposes of
the computation of the Basket Amount. The Basket Amount so determined is
communicated via electronic mail message to all Authorized Participants, and
made available on the Sponsor’s website for the Shares. The Exchange also
publishes the Basket Amount determined by the Trustee as indicated
above.
Because the
Sponsor has assumed what are expected to be most of the Trust’s expenses, and
the Sponsor’s Fee accrues daily at the same rate (i.e., 1/365th for a non-leap
year or 1/366th for a leap year of the daily net asset value of the
Trust multiplied by 0.1749%), in the absence of any extraordinary expenses or
liabilities, the amount of gold by which the Basket Amount decreases each day is
predictable. Authorized Participants may use that indicative Basket Amount as
guidance regarding the amount of gold that they may expect to have to deposit
with the Custodian in respect of purchase orders placed by them on such next
business day and accepted by the Trustee. The Authorized Participant Agreement
provides, however, that once a purchase order has been accepted by the Trustee,
the Authorized Participant will be required to deposit with the Custodian the
Basket Amount determined by the Trustee on the effective date of the purchase
order.
No Shares
are issued unless and until the Custodian has informed the Trustee that it has
allocated to the Trust Allocated Account (other than up to 430 Fine Ounces,
which may be held in the Trust Unallocated Account) the corresponding amount of
gold.
Redemption of Baskets
Authorized
Participants, acting on authority of the registered holder of Shares or on their
own account, may surrender Baskets of Shares in exchange for the corresponding
Basket Amount announced by the Trustee. Upon the surrender of such Shares and
the payment of the Trustee’s applicable fee and of any expenses, taxes or
charges (such as stamp taxes or stock transfer taxes or fees), the Trustee will
deliver to the order of the redeeming Authorized Participant the amount of gold
corresponding to the redeemed Baskets. Shares can only be surrendered for
redemption in Baskets of 50,000 Shares each.
Before
surrendering Baskets of Shares for redemption, an Authorized Participant must
deliver to the Trustee a written request indicating the number of Baskets it
intends to redeem or on a business day when the LBMA Gold Price PM or other
applicable benchmark price is not announced. The date the Trustee receives that
order determines the Basket Amount to be received in exchange. However, orders
received by the Trustee after 3:59 p.m. (New York time) on a business day or on
a business day when the LBMA Gold Price PM or other applicable benchmark price
is not announced, will not be accepted.
The
redemption distribution from the Trust will consist of a credit to the redeeming
Authorized Participant’s unallocated account representing the amount of the gold
held by the Trust evidenced by the Shares being redeemed as of the date of the
redemption order. Fractions of a Fine Ounce included in the redemption
distribution smaller than 0.001 of a Fine Ounce are disregarded. The redemption
distribution will not be delivered unless and until all of the Shares to be
redeemed have been received by the Trustee.
In
connection with any issuance or redemption of Shares, the Authorized Participant
shall be responsible for paying or reimbursing to the Custodian and the Trustee
the amount of any applicable tax, fees or other governmental charge that may be
due in connection with the transfer of gold and the issuance and delivery of
Shares, and any expense associated with the delivery of gold other than by
credit to an Authorized Participant’s unallocated account with the
Custodian.
Redemptions
may be suspended, or the date for delivery of gold may be postponed, only (i)
during any period in which regular trading on the Exchange is suspended or
restricted or the Exchange is closed (other than scheduled holiday or weekend
closings), or (ii) during an emergency as a result of which delivery, disposal
or evaluation of gold is not reasonably practicable. Neither the Trustee nor the
Sponsor will be liable to any person by reason of any such suspension or
postponement.
Fees and Expenses of the Trustee
Each deposit
of gold for the creation of Baskets of Shares and each surrender of Baskets of
Shares for the purpose of withdrawing Trust property (including if the Trust
Agreement terminates) must be accompanied by a payment to the Trustee of a fee
of $500 (or such other fee as the Trustee, with the prior written consent of the
Sponsor, may from time to time announce).
The Trustee
is entitled to reimburse itself from the assets of the Trust for all expenses
and disbursements incurred by it for extraordinary services it may provide to
the Trust or in connection with any discretionary action the Trustee may take to
protect the Trust or the interests of the holders.
The Sponsor
The Sponsor
is a Delaware limited liability company and was formed on January 6, 2017. The
Sponsor’s office is located at 205 Hudson Street, New York, New York 10013.
Under the Delaware Limited Liability Company Act and the governing documents of
the Sponsor, the sole member of the Sponsor, GraniteShares, Inc., is not
responsible for the debts, obligations and liabilities of the Sponsor solely by
reason of being the sole member of the Sponsor.
The
Sponsor’s Role
The Sponsor
arranged for the creation of the Trust and is responsible for the ongoing
registration of the Shares for their public offering in the United States and
the listing of the Shares on the Exchange. The Sponsor has agreed to assume the
organizational expenses of the Trust and the following expenses incurred by the
Trust: The Trustee’s monthly fee and its ordinary out-of-pocket expenses, the
Custodian’s Fee and its reimbursable expenses, Exchange listing fees, SEC
registration fees, marketing expenses, printing and mailing costs, audit fees
and expenses and up to $100,000 per annum in legal fees and expenses.
The Sponsor
will not exercise day-to-day oversight over the Trustee or the Custodian. The
Sponsor may remove the Trustee and appoint a successor Trustee (i) if the
Trustee ceases to meet certain objective requirements (including the requirement
that it has capital, surplus and undivided profits of at least $150 million),
(ii) if, having received written notice of a material breach of its obligations
under the Trust Agreement, the Trustee has not cured the breach within 30 days,
or (iii) if the Trustee refuses to consent to the implementation of an amendment
to the Trust’s initial Internal Control Over Financial Reporting. The Sponsor
also has the right to replace the Trustee during the 90 days following any
merger, consolidation or conversion in which the Trustee is not the surviving
entity or, in its discretion, on the fifth anniversary of the creation of the
Trust or on any subsequent third anniversary thereafter. The Sponsor also has
the right to direct the Trustee to appoint any new or additional Custodian that
the Sponsor selects.
The Sponsor
has developed a marketing plan for the Trust, prepares marketing materials
regarding the Shares, including the content of the Trust’s website, and executes
the marketing plan for the Trust on an ongoing basis.
The Trustee
The Bank of
New York Mellon, a banking corporation organized under the laws of the State of
New York with trust powers, serves as the Trustee. The Bank of New York Mellon
has a trust office at 2 Hanson Place, 9th Floor, Brooklyn, New York 11217. The
Bank of New York Mellon is subject to supervision by the New York State
Department of Financial Services and the Board of Governors of the Federal
Reserve System. A copy of the Trust Agreement is available for inspection at The
Bank of New York Mellon’s trust office identified above. The Bank of New York
Mellon had at least $150 million in capital and retained earnings as of June 30,
2021.
The
Trustee’s Role
The Trustee
is responsible for the day-to-day administration of the Trust. This includes (i)
processing orders for the creation and redemption of Baskets; (ii) coordinating
with the Custodian the receipt and delivery of gold transferred to, or by, the
Trust in connection with each issuance and redemption of Baskets; (iii)
calculating the net asset value of the Trust on each business day; and (iv)
selling the Trust’s gold as needed to cover the Trust’s expenses. The Trustee
intends to regularly communicate with the Sponsor to monitor the overall
performance of the Trust. The Trustee does not monitor the performance of the
Custodian other than to review the reports provided by the Custodian pursuant to
the Custody Agreements. The Trustee, along with the Sponsor, will liaise with
the Trust’s legal, accounting and other professional service providers as
needed. The Trustee will assist and support the Sponsor with the preparation of
the financial statements of the Trust and with all periodic reports required to
be filed with the SEC on behalf of the Trust.
The Custodian
ICBC
Standard Bank Plc, a public limited company incorporated under the laws of
England and Wales, serves as the Custodian of the Trust’s gold.
The
Custodian’s Role
The
Custodian is responsible for holding the Trust’s allocated gold as well as
receiving and converting allocated and unallocated gold on behalf of the Trust.
Unless otherwise agreed between the Trustee (as instructed by the Sponsor) and
the Custodian, physical gold must be held by the Custodian at its London vault
premises. At the end of each business day, the Custodian will hold no more than
430 Fine Ounces of unallocated gold for the Trust, which corresponds to the
maximum Fine Ounce weight of a London Good Delivery Bar. The Custodian converts
the Trust’s gold between allocated and unallocated gold when: (1) Authorized
Participants engage in creation and redemption transactions with the Trust; or
(2) gold is sold to pay Trust expenses. The Custodian will facilitate the
transfer of gold in and out of the Trust through the unallocated gold accounts
it may maintain for each Authorized Participant or unallocated gold accounts
that may be maintained for an Authorized Participant by another LBMA-approved
gold-clearing bank, and through the unallocated gold account it will maintain
for the Trust. The Custodian is responsible for allocating specific bars of gold
to the Trust Allocated Account.
The
Custodian will provide the Trustee with regular reports detailing the gold
transfers in and out of the Trust Unallocated Account with the Custodian and
identifying the gold bars held in the Trust Allocated Account.
The
Custodian’s fees and expenses are to be paid by the Sponsor. The Custodian and
its affiliates may from time to time act as Authorized Participants or purchase
or sell gold or shares for their own account, as an agent for their customers
and for accounts over which they exercise investment discretion. The Trustee, on
behalf of the Trust, has entered into the Custody Agreements with the Custodian,
under which the Custodian maintains the Trust Unallocated Account and the Trust
Allocated Account.
Pursuant to
the Trust Agreement, if, upon the resignation of the Custodian, there would be
no custodian acting pursuant to the Custody Agreements, the Trustee shall,
promptly after receiving notice of such resignation, appoint a substitute
custodian or custodians selected by the Sponsor pursuant to custody agreement(s)
approved by the Sponsor (provided, however, that the rights and duties of the
Trustee under the Trust Agreement and the custody agreement(s) shall not be
materially altered without its consent). When directed by the Sponsor, and to
the extent permitted by, and in the manner provided by, the Custody Agreements,
the Trustee shall remove the Custodian and appoint a substitute or appoint an
additional custodian or custodians selected by the Sponsor. Each such substitute
or additional custodian shall, forthwith upon its appointment, enter into a
Custody Agreement in form and substance approved by the Sponsor. After the entry
into the Custody Agreements, the Trustee shall not enter into or amend any
Custody Agreement with a custodian without the written approval of the Sponsor
(which approval shall not be unreasonably withheld or delayed). When instructed
by the Sponsor, the Trustee shall demand that a custodian of the Trust deliver
such of the Trust’s gold held by it as is requested of it to any other custodian
or such substitute or additional custodian or custodians directed by the
Sponsor. In connection with such transfer of physical gold, the Trustee will, at
the direction of the Sponsor, cause the physical gold to be weighed or assayed.
The Trustee shall have no liability for any transfer of physical gold or
weighing or assaying of delivered physical gold as directed by the Sponsor, and
in the absence of such direction shall have no obligation to effect such a
delivery or to cause the delivered physical gold to be weighed, assayed or
otherwise validated.
Under the
Trust Agreement, the Sponsor is responsible for appointing accountants, auditors
or other inspectors to audit or examine the accounts and operations of the
Custodian and any successor custodian or additional custodian at such times as
directed by the Sponsor as permitted by the Custody Agreements. See “Inspection
of Gold” for a summary of the provisions of the Custody Agreements permitting
the Sponsor and the Trustee and their identified representatives, independent
public accountants and physical gold auditors to access the premises of the
Custodian and to examine the physical gold and records maintained by the
Custodian pursuant to the Custody Agreements. The Trustee has no obligation to
monitor the activities of the Custodian other than to receive and review such
reports of the gold held for the Trust by such Custodian and of transactions in
gold held for the account of the Trust made by such Custodian pursuant to the
Custody Agreements.
Inspection of Gold
Under the
Custody Agreements, the Custodian will allow the Sponsor and the Trustee and
their identified representatives, independent public accountants and physical
gold auditors (currently Bureau Veritas), access to its premises upon reasonable
notice during normal business hours, to examine the physical gold and such
records as they may reasonably require to perform their respective duties with
regard to investors in Shares. The Trustee agrees that any such access shall be
subject to execution of a confidentiality agreement and agreement to the
Custodian’s security procedures, and any such audit shall be at the Trust’s
expense.
Description of the Shares
General
The Trustee
is authorized under the Trust Agreement to create and issue an unlimited number
of Shares. The Trustee creates Shares only in Baskets (a Basket equals a block
of 50,000 Shares) and only upon the order of an Authorized Participant. The
Shares represent units of fractional undivided beneficial interest in and
ownership of the Trust and have no par value. Any creation and issuance of
Shares above the amount registered on the Trust’s then-current and effective
registration statement with the SEC will require the registration of such
additional Shares.
Description
of Limited Rights
The Shares
do not represent a traditional investment and Shareholders should not view them
as similar to “shares” of a corporation operating a business enterprise with
management and a board of directors. Shareholders do not have the statutory
rights normally associated with the ownership of shares of a corporation,
including, for example, the right to bring “oppression” or “derivative” actions.
All Shares are of the same class with equal rights and privileges. Each Share is
transferable, is fully paid and non-assessable and entitles the holder to vote
on the limited matters upon which Shareholders may vote under the Trust
Agreement. The Shares do not entitle their holders to any conversion or
pre-emptive rights, or, except as provided below, any redemption rights or
rights to distributions.
Distributions
If the Trust
is terminated and liquidated, the Trustee will distribute to the Shareholders
any amounts remaining after the satisfaction of all outstanding liabilities of
the Trust and the establishment of such reserves for applicable taxes, other
governmental charges and contingent or future liabilities as the Trustee shall
determine. Shareholders of record on the record date fixed by the Trustee for a
distribution will be entitled to receive their pro rata portion of any
distribution.
Voting
and Approvals
Under the
Trust Agreement, Shareholders have no voting rights, except in limited
circumstances. The Trustee may terminate the Trust upon the agreement of
Shareholders owning at least 75% of the outstanding Shares. In addition, certain
amendments to the Trust Agreement require advance notice to the Shareholders
before the effectiveness of such amendments, but no Shareholder vote or approval
is required for any amendment to the Trust Agreement.
Redemption
of the Shares
The Shares
may only be redeemed by or through an Authorized Participant and only in
Baskets.
Book-Entry
Form
Individual
certificates will not be issued for the Shares. Instead, one or more global
certificates is deposited by the Trustee with DTC and registered in the name of
Cede & Co., as nominee for DTC. The global certificates evidence all of the
Shares outstanding at any time. Under the Trust Agreement, Shareholders are
limited to (1) participants in DTC such as banks, brokers, dealers and trust
companies (DTC Participants), (2) those who maintain, either directly or
indirectly, a custodial relationship with a DTC Participant (Indirect
Participants), and (3) those banks, brokers, dealers, trust companies and others
who hold interests in the Shares through DTC Participants or Indirect
Participants. The Shares are only transferable through the book-entry system of
DTC. Shareholders who are not DTC Participants may transfer their Shares through
DTC by instructing the DTC Participant holding their Shares (or by instructing
the Indirect Participant or other entity through which their Shares are held) to
transfer the Shares. Transfers will be made in accordance with standard
securities industry practice.
Custody of the Trust’s Gold
The
Custodian, as instructed by the Trustee on behalf of the Trust, is authorized to
accept, on behalf of the Trust, deposits of gold in unallocated form. Acting on
standing instructions specified in the Custody Agreements, the Custodian
allocates gold deposited in unallocated form with the Trust by selecting bars of
physical gold for deposit to the Trust Allocated Account. All physical gold
allocated to the Trust must conform to the rules, regulations, practices and
customs of the LPPM (including without limitation the good delivery rules of the
LPPM).
Gold held
for the Trust Allocated Account by the Custodian is held at the Custodian’s
London vault. Gold temporarily held by the Custodian’s currently selected
sub-custodians and by sub-custodians of sub-custodians may be held in vaults
located in England or in other locations. When physical gold is held for the
Trust Allocated Account by a sub-custodian, the Custodian will use, or where
applicable require any sub-custodian to use, commercially reasonable efforts to
promptly transport such physical gold held on behalf of the Trust to the
Custodian’s London vault premises at the Custodian’s own cost and
risk.
The
Custodian’s vault is managed by The Brink’s Company. The Custodian segregates by
identification in its books and records the Trust’s gold in the Trust Allocated
Account from any other gold which it owns or holds for others and requires the
sub-custodians it selects to so segregate the Trust’s gold held by them. This
requirement reflects the current custody practice in the London bullion market
and, under the Trust Allocated Account Agreement, the Custodian is deemed to
have communicated such requirement by virtue of its participation in the London
bullion market. The Custodian’s books and records are expected, as a matter of
current London bullion market custody practice, to identify every bar of gold
held in the Trust Allocated Account in its own vault by refiner, assay, serial
number and weight. Sub-custodians selected by the Custodian are also expected,
as a matter of current industry practice, to identify in their books and records
each bar of gold held for the Custodian by serial number and such sub-custodians
may use other identifying information.
The Sponsor
has contracted with a specialist bullion assaying firm to provide biannual
inspections of the gold bars held on behalf of the Trust and the Custodian’s
records concerning the Trust Allocated Account and the Trust Unallocated Account
as they may be reasonably required to perform their respective duties to
Shareholders. One audit will be conducted at the end of the fiscal year (June
30) and the other at random, with the consent of the Custodian, on a date
selected by the assaying firm.
United States Federal Income Tax Consequences
The
following discussion of the material United States federal income tax
consequences that generally will apply to the purchase, ownership and
disposition of Shares by a U.S. Shareholder (as defined below), and certain
United States federal income consequences that may apply to an investment in
Shares by a Non-U.S. Shareholder (as defined below), represents, insofar as it
describes conclusions as to United States federal income tax law and subject to
the limitations and qualifications described therein, the opinion of Thompson
Hine LLP, special United States federal income tax counsel to the Sponsor. The
discussion below is based on the Internal Revenue Code of 1986, as amended (the
“Code”), Treasury Regulations promulgated thereunder and judicial and
administrative interpretations of the Code, all as in effect on the date of this
prospectus and all of which are subject to change either prospectively or
retroactively. The tax treatment of Shareholders may vary depending upon their
own particular circumstances. Certain Shareholders (including but not limited to
banks, financial institutions, insurance companies, tax-exempt organizations,
broker-dealers, traders, Shareholders that are partnerships for United States
federal income tax purposes, persons holding Shares as a position in a
“hedging,” “straddle,” “conversion,” or “constructive sale” transaction for
United States federal income tax purposes, persons whose “functional currency”
is not the U.S. dollar, persons with “applicable financial statements” within
the meaning of Section 451(b) of the Code, or other investors with special
circumstances) may be subject to special rules not discussed below. In addition,
the following discussion applies only to investors who will hold Shares as
“capital assets” within the meaning of Section 1221 of the Code. Moreover, the
discussion below does not address the effect of any state, local or foreign tax
law on an owner of Shares. Purchasers of Shares are urged to consult their own
tax advisers with respect to all federal, state, local and foreign tax law
considerations potentially applicable to their investment in Shares.
For purposes
of this discussion, a “U.S. Shareholder” is a Shareholder that is:
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an
individual who is treated as a citizen or resident of the United States
for United States federal income tax purposes; |
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a
corporation (or entity treated as a corporation for United States federal
income tax purposes) created or organized in or under the laws of the
United States, any state thereof or the District of Columbia; |
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an
estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source;
or |
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a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust, or a trust that has made a valid election under applicable
Treasury Regulations to be treated as a domestic
trust. |
A
Shareholder that is not a U.S. Shareholder as defined above is considered a
“Non-U.S. Shareholder” for purposes of this discussion. If a partnership or
other entity or arrangement treated as a partnership for U.S. federal income tax
purposes holds Shares, the tax treatment of a partner generally depends upon the
status of the partner and the activities of the partnership. If you are a
partner of a partnership holding Shares, the discussion below may not be
applicable and we urge you to consult your own tax adviser for the U.S. federal
tax implications of the purchase, ownership and disposition of such
Shares.
Taxation
of the Trust
The Sponsor
and the Trustee will treat the Trust as a “grantor trust” for United States
federal income tax purposes. In the opinion of Thompson Hine LLP, special United
States federal income tax counsel to the Sponsor, the Trust will be classified
as a “grantor trust” for United States federal income tax purposes. As a result,
the Trust itself will not be subject to United States federal income tax.
Instead, the Trust’s income and expenses will “flow through” to the
Shareholders, and the Trustee will report the Trust’s income, gains, losses and
deductions to the Internal Revenue Service (the “IRS”) on that basis. The
opinion of Thompson Hine LLP represents only its best legal judgment and is not
binding on the IRS or any court. Accordingly, there can be no assurance that the
IRS will agree with the conclusions of counsel’s opinion and it is possible that
the IRS or another tax authority could assert a position contrary to one or all
of those conclusions and that a court could sustain that contrary position.
Neither the Sponsor nor the Trustee will request a ruling from the IRS with
respect to the classification of the Trust for United States federal income tax
purposes. If the IRS were to assert successfully that the Trust is not
classified as a “grantor trust,” the Trust would likely be classified as a
partnership for United States federal income tax purposes, which may affect the
timing and other tax consequences to the Shareholders.
The
following discussion assumes that the Trust will be classified as a “grantor
trust” for United States federal income tax purposes.
Taxation
of U.S. Shareholders
Shareholders
will be treated, for United States federal income tax purposes, as if they
directly owned a pro rata share of the underlying assets held in the Trust.
Shareholders also will be treated as if they directly received their respective
pro rata shares of the Trust’s income, if any, and as if they directly incurred
their respective pro rata shares of the Trust’s expenses. In the case of a
Shareholder that purchases Shares for cash, its initial tax basis in its pro
rata share of the assets held in the Trust at the time it acquires its Shares
will be equal to its cost of acquiring the Shares. In the case of a Shareholder
that acquires its Shares as part of a creation of a Basket, the delivery of gold
to the Trust in exchange for the underlying gold represented by the Shares will
not be a taxable event to the Shareholder, and the Shareholder’s tax basis and
holding period for the Shareholder’s pro rata share of the gold held in the
Trust will be the same as its tax basis and holding period for the gold
delivered in exchange therefor. For purposes of this discussion, and unless
stated otherwise, it is assumed that all of a Shareholder’s Shares are acquired
on the same date and at the same price per Share. Shareholders that hold
multiple lots of Shares, or that are contemplating acquiring multiple lots of
Shares, should consult their own tax advisers as to the determination of the tax
basis and holding period for the underlying gold related to such
Shares.
When the
Trust sells gold, for example to pay expenses, a Shareholder will recognize gain
or loss in an amount equal to the difference between (a) the Shareholder’s pro
rata share of the amount realized by the Trust upon the sale and (b) the
Shareholder’s tax basis for its pro rata share of the gold that was sold. A
Shareholder’s tax basis for its share of any gold sold by the Trust generally
will be determined by multiplying the Shareholder’s total basis for its share of
all of the gold held in the Trust immediately prior to the sale, by a fraction
the numerator of which is the amount of gold sold, and the denominator of which
is the total amount of the gold held in the Trust immediately prior to the sale.
After any such sale, a Shareholder’s tax basis for its pro rata share of the
gold remaining in the Trust will be equal to its tax basis for its share of the
total amount of the gold held in the Trust immediately prior to the sale, less
the portion of such basis allocable to its share of the gold that was
sold.
Upon a
Shareholder’s sale of some or all of its Shares, the Shareholder will be treated
as having sold the portion or all, respectively, of its pro rata share of the
gold held in the Trust at the time of the sale that is attributable to the
Shares sold. Accordingly, the Shareholder generally will recognize gain or loss
on the sale in an amount equal to the difference between (a) the amount realized
pursuant to the sale of the Shares, and (b) the Shareholder’s tax basis for the
portion of its pro rata share of the gold held in the Trust at the time of sale
that is attributable to the Shares sold, as determined in the manner described
in the preceding paragraph.
A redemption
of some or all of a Shareholder’s Shares in exchange for the underlying gold
represented by the Shares redeemed generally will not be a taxable event to the
Shareholder. The Shareholder’s tax basis for the gold received in the redemption
generally will be the same as the Shareholder’s tax basis for the portion of its
pro rata share of the gold held in the Trust immediately prior to the redemption
that is attributable to the Shares redeemed. The Shareholder’s holding period
with respect to the gold received should include the period during which the
Shareholder held the Shares redeemed. A subsequent sale of the gold received by
the Shareholder will be a taxable event, unless a nonrecognition provision of
the Code applies to such sale.
After any
sale or redemption of less than all of a Shareholder’s Shares, the Shareholder’s
tax basis for its pro rata share of the gold held in the Trust immediately after
such sale or redemption generally will be equal to its tax basis for its share
of the total amount of the gold held in the Trust immediately prior to the sale
or redemption, less the portion of such basis which is taken into account in
determining the amount of gain or loss recognized by the Shareholder upon such
sale or, in the case of a redemption, that is treated as the basis of the gold
received by the Shareholder in the redemption.
Maximum
28% Long-Term Capital Gains Tax Rate for U.S. Shareholders Who Are
Individuals
Under
current law, gains recognized by individuals from the sale of “collectibles,”
including gold, held for more than one year are taxed at a maximum rate of 28%,
rather than the current maximum 20% rate applicable to most other long-term
capital gains. For these purposes, gain recognized by an individual upon the
sale of an interest in a trust that holds collectibles is treated as gain
recognized on the sale of collectibles, to the extent that the gain is
attributable to unrealized appreciation in value of the collectibles held by the
Trust. Therefore, any gain recognized by an individual U.S. Shareholder
attributable to a sale of Shares held for more than one year, or attributable to
the Trust’s sale of any gold which the Shareholder is treated (through its
ownership of Shares) as having held for more than one year, generally will be
taxed at a maximum federal income tax rate of 28%. The federal income tax rates
for capital gains recognized upon the sale of assets held by an individual U.S.
Shareholder for one year or less are generally the same as those at which
ordinary income is taxed. A U.S. corporation’s capital gain is generally taxed
at the same federal income tax rates applicable to the corporation’s ordinary
income.
3.8%
Tax on Net Investment Income
Certain U.S.
Shareholders who are individuals are required to pay a 3.8% tax on the lesser of
the excess of their modified adjusted gross income over a threshold amount
($250,000 for married persons filing jointly and $200,000 for single taxpayers)
or their “net investment income,” which generally includes capital gains from
the disposition of property. This tax is in addition to any capital gains taxes
due on such investment income. A similar tax applies to estates and trusts. U.S.
Shareholders should consult their own tax advisers regarding the effect, if any,
this law may have on their investment in the Shares.
Brokerage
Fees and Trust Expenses
Any
brokerage or other transaction fee incurred by a Shareholder in purchasing
Shares will be treated as part of the Shareholder’s tax basis in the underlying
assets of the Trust. Similarly, any brokerage fee incurred by a Shareholder in
selling Shares will reduce the amount realized by the Shareholder with respect
to the sale.
Shareholders
will be required to recognize the full amount of gain or loss upon a sale of
gold by the Trust (as discussed above), even though some or all of the proceeds
of such sale are used by the Trustee to pay Trust expenses. Shareholders may
deduct their respective pro rata shares of each expense incurred by the Trust to
the same extent as if they directly incurred the expense. Shareholders who are
individuals, estates or trusts, however, may be required to treat some or all of
the expenses of the Trust as miscellaneous itemized deductions. An individual
may not deduct miscellaneous itemized deductions for tax years beginning after
December 31, 2017 and before January 1, 2026. For tax years beginning before
January 1, 2018 and after December 31, 2025, individuals may deduct certain
miscellaneous itemized deductions only to the extent they exceed 2% of adjusted
gross income. In addition, such deductions may be subject to phase outs and
other limitations under applicable provisions of the Code.
Investment
by U.S. Tax-Exempt Shareholders
Certain U.S.
Shareholders (“U.S. Tax-Exempt Shareholders”) are subject to United States
federal income tax only on their “unrelated business taxable income” (“UBTI”).
Unless they incur debt in order to purchase Shares, it is expected that U.S.
Tax-Exempt Shareholders should not realize UBTI in respect of income or gains
from the Shares. U.S. Tax-Exempt Shareholders should consult their own
independent tax advisers regarding the United States federal income tax
consequences of holding Shares in light of their particular
circumstances.
Investment
by Regulated Investment Companies
Mutual funds
and other investment vehicles which are “regulated investment companies” within
the meaning of Code Section 851 should consult with their tax advisers
concerning (i) the likelihood that an investment in Shares may be considered an
investment in the underlying gold for purposes of Code Section 851(b), and (ii)
the extent to which an investment in Shares might nevertheless be consistent
with preservation of their qualification under Code Section 851. We note that in
recent administrative guidance, the IRS stated that it will no longer issue
rulings under Code Section 851(b) relating to the determination of whether or
not an instrument or position is a “security,” but, instead, intends to defer to
guidance from the SEC for such determination
Investment
by Certain Retirement Plans
Section
408(m) of the Code provides that the purchase of a “collectible” as an
investment for an IRA, or for a participant-directed account maintained under
any plan that is tax-qualified under Section 401(a) of the Code (“Tax Qualified
Account”), is treated as a taxable distribution from the account to the owner of
the IRA, or to the participant for whom the Tax Qualified Account is maintained,
of an amount equal to the cost to the account of acquiring the collectible. The
IRS has issued private letter rulings which provide that the purchase of shares
of trusts similar to the Trust by an IRA or a Tax Qualified Account will not
constitute the acquisition of a collectible or be treated as resulting in a
taxable distribution to the IRA owner or Tax Qualified Account participant under
Code Section 408(m). However, if any of the Shares so purchased are distributed
from an IRA or Tax Qualified Account to the IRA owner or plan participant, or if
any gold received by such IRA or Tax Qualified Account upon the redemption of
any of the Shares purchased by it is distributed (or treated as distributed
pursuant to Code section 408(m)) to the IRA owner or plan participant, the
Shares or gold so distributed will be subject to federal income tax in the year
of distribution, to the extent provided under the applicable provisions of Code
sections 408(d), 408(m) or 402. Private letter rulings are only binding on the
IRS with respect to the taxpayer to which they were issued and the Trust has
neither requested nor obtained such a private letter ruling. Accordingly,
potential IRA or Tax Qualified Account investors are urged to consult with their
own professional advisors concerning the treatment of an investment in Shares
under Code Section 408(m).
Taxation
of Non-U.S. Shareholders
A Non-U.S.
Shareholder generally will not be subject to United States federal income tax
with respect to gain recognized upon the sale or other disposition of Shares, or
upon the sale of gold by the Trust, unless (1) the Non-U.S. Shareholder is an
individual and is present in the United States for 183 days or more during the
taxable year of the sale or other disposition, and the gain is treated as being
from United States sources; or (2) the gain is effectively connected with the
conduct by the Non-U.S. Shareholder of a trade or business in the United States
and certain other conditions are met.
United
States Information Reporting and Backup Withholding
The Trustee
will file certain information returns with the IRS, and provide certain
tax-related information to Shareholders, in connection with the Trust. To the
extent required by applicable regulations, each Shareholder will be provided
with information regarding its allocable portion of the Trust’s annual income
(if any) and expenses. A U.S. Shareholder may be subject to United States backup
withholding tax, at a rate of 24%, in certain circumstances unless it provides
its taxpayer identification number and complies with certain certification
procedures. Non-U.S. Shareholders may have to comply with certification
procedures to establish that they are not a United States person, and some
Non-U.S. Shareholders will be required to meet certain information reporting or
certification requirements imposed by the Foreign Account Tax Compliance Act, in
order to avoid certain information reporting and withholding tax
requirements.
The amount
of any backup withholding will be allowed as a credit against a Shareholder’s
United States federal income tax liability and may entitle such a Shareholder to
a refund, provided that the required information is furnished to the IRS in a
timely manner.
Taxation
in Jurisdictions Other Than the United States
Prospective
purchasers of Shares that are based in or acting out of a jurisdiction other
than the United States are advised to consult their own tax advisers as to the
tax consequences, under the laws of such jurisdiction (or any other jurisdiction
other than the United States to which they are subject), of their purchase,
holding, sale and redemption of or any other dealing in Shares and, in
particular, as to whether any value added tax, other consumption tax or transfer
tax is payable in relation to such purchase, holding, sale, redemption or other
dealing.
ERISA and Related Considerations
ERISA and/or
Code section 4975 impose certain requirements on certain employee benefit plans
and certain other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans, and certain commingled investment vehicles
or insurance company general or separate accounts in which such plans or
arrangements are invested (collectively, “Plans”), and on persons who are
fiduciaries with respect to the investment of “plan assets” of a Plan.
Government plans and some church plans are not subject to the fiduciary
responsibility provisions of ERISA or the provisions of section 4975 of the
Code, but may be subject to substantially similar rules under other federal law,
or under state or local law (“Other Law”).
In
contemplating an investment of a portion of Plan assets in Shares, the Plan
fiduciary responsible for making such investment should carefully consider,
taking into account the facts and circumstances of the Plan and the “Risk
Factors” discussed above and whether such investment is consistent with its
fiduciary responsibilities under ERISA or Other Law, including, but not limited
to: (1) whether the investment is permitted under the Plan’s governing
documents, (2) whether the fiduciary has the authority to make the investment,
(3) whether the investment is consistent with the Plan’s funding objectives, (4)
the tax effects of the investment on the Plan, and (5) whether the investment is
prudent considering the factors discussed in this prospectus. In addition, ERISA
and Code section 4975 prohibit a broad range of transactions involving assets of
a plan and persons who are “parties in interest” under ERISA or “disqualified
persons” under section 4975 of the Code. A violation of these rules may result
in the imposition of significant excise taxes and other liabilities. Plans
subject to Other Law may be subject to similar restrictions.
It is
anticipated that the Shares will constitute “publicly offered securities” as
defined in the Department of Labor “Plan Asset Regulations,” §2510.3-101 (b)(2)
as modified by section 3(42) of ERISA. Accordingly, pursuant to the Plan Asset
Regulations, only Shares purchased by a Plan, and not an interest in the
underlying assets held in the Trust, should be treated as assets of the Plan,
for purposes of applying the “fiduciary responsibility” rules of ERISA and the
“prohibited transaction” rules of ERISA and the Code. Fiduciaries of plans
subject to Other Law should consult legal counsel to determine whether there
would be a similar result under the Other Law.
Allowing
an investment in the Trust is not to be construed as a representation by the
Sponsor or any of its affiliates, agents or employees that this investment meets
some or all of the relevant legal requirements with respect to investments by
any particular Plan or that this investment is appropriate for any such
particular Plan. The person with investment discretion should consult with the
Plan’s attorney and financial advisors as to the propriety of an investment in
the Trust in light of the circumstances of the particular Plan, current tax law
and ERISA.
Item 1A. Risk Factors
Before
making an investment decision, you should consider carefully the risks described
below, as well as the other information included in this prospectus.
Shareholders should also refer to the other information included in this report,
including the Trust’s financial statements and the related notes.
Because
the Shares are created to reflect the price of the gold held by the Trust, the
market price of the Shares will be as unpredictable as the price of gold has
historically been. This creates the potential for losses, regardless of whether
you hold Shares for the short-, mid- or long-term.
Shares are
created to reflect, at any given time, the market price of gold owned by the
Trust at that time less the Trust’s expenses and liabilities. Because the value
of Shares depends on the price of gold, it is subject to fluctuations similar to
those affecting gold prices. The price of gold has fluctuated widely over the
past several years. If gold markets continue to be characterized by the wide
fluctuations that they have shown in the past several years, the price of the
Shares will change widely and in an unpredictable manner. This exposes your
investment in Shares to potential losses if you need to sell your Shares at a
time when the price of gold is lower than it was when you made your investment
in Shares. Even if you are able to hold Shares for the mid- or long-term you may
never realize a profit, because gold markets have historically experienced
extended periods of flat or declining prices.
Following an
investment in Shares, several factors may have the effect of causing a decline
in the prices of gold and a corresponding decline in the price of Shares. Among
them:
|
● |
Large
sales, including those by the official sector (government, central banks
and related institutions), which own a significant portion of the
aggregate world holdings. If one or more of these institutions decides to
sell in amounts large enough to cause a decline in world gold prices, the
price of the Shares will be adversely affected. |
|
|
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● |
A
significant increase in gold hedging activity by gold producers. Should
there be an increase in the level of hedge activity of gold producing
companies, it could cause a decline in world gold prices, adversely
affecting the price of the Shares. |
|
|
|
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● |
A
significant change in the attitude of speculators and investors towards
gold. Should the speculative community take a negative view towards gold,
it could cause a decline in world gold prices, negatively impacting the
price of the Shares. Attitudes towards gold could be influenced
by: |
|
● |
Investors’
expectations regarding future inflation rates; |
|
● |
Currency
exchange rate volatility; |
|
● |
Interest
rate volatility; and |
|
● |
Unexpected
political, economic, global or regional
incidents. |
Conversely,
several factors may trigger a temporary increase in the price of gold prior to
your investment in the Shares. If that is the case, you will be buying Shares at
prices affected by the temporarily high prices of gold, and you may incur losses
when the causes for the temporary increase disappear.
The
amount of gold represented by each Share will decrease over the life of the
Trust due to the sales of gold necessary to pay the Sponsor’s Fee and Trust
expenses. Without increases in the price of gold sufficient to compensate for
that decrease, the price of the Shares will also decline and you will lose money
on your investment in Shares.
Although the
Sponsor has agreed to assume all organizational and certain ordinary expenses
incurred by the Trust, not all Trust expenses have been assumed by the Sponsor.
For example, any taxes and other governmental charges that may be imposed on the
Trust’s property will not be paid by the Sponsor. As part of its agreement to
assume some of the Trust’s ordinary administrative expenses, the Sponsor has
agreed to pay legal fees and expenses of the Trust not in excess of $100,000 per
annum. Any legal fees and expenses in excess of that amount will be the
responsibility of the Trust.
Because the
Trust does not have any income, it needs to sell gold to cover expenses not
assumed by the Sponsor. The Trust may also be subject to other liabilities (for
example, as a result of litigation) which have also not been assumed by the
Sponsor. The only source of funds to cover those liabilities will be sales of
gold held by the Trust. Even if there are no expenses other than those assumed
by the Sponsor, and there are no other liabilities of the Trust, the Trustee
will still need to sell gold to pay the Sponsor’s Fee. The result of these sales
is a decrease in the amount of gold represented by each Share. New deposits of
gold, received in exchange for new Shares issued by the Trust, do not reverse
this trend.
A decrease
in the amount of gold represented by each Share results in a decrease in its
price even if the price of gold has not changed. To retain the Share’s original
price, the price of gold has to increase. Without that increase, the lesser
amount of gold represented by the Share will have a correspondingly lower price.
If these increases do not occur, or are not sufficient to counter the lesser
amount of gold represented by each Share, you will sustain losses on your
investment in Shares.
An increase
in the Trust expenses not assumed by the Sponsor, or the existence of unexpected
liabilities affecting the Trust, will force the Trustee to sell larger amounts
of gold, and will result in a more rapid decrease of the amount of gold
represented by each Share and a corresponding decrease in its value.
Future
governmental decisions may have significant impact on the price of gold, which
may result in a significant decrease or increase in the value of the net assets
and the net asset value of the Trust.
Generally,
gold prices reflect the supply and demand of available gold. Governmental
decisions, such as the executive order issued by the President of the United
States in 1933 requiring all persons in the United States to deliver gold to the
Federal Reserve or the abandonment of the gold standard by the United States in
1971, have been viewed as having significant impact on the supply and demand of
gold and the price of gold. Future governmental decisions may have an impact on
the price of gold, and may result in a significant decrease or increase in the
value of the net assets and the net asset value of the Trust. Further
regulations applicable to U.S. banks and non-U.S. bank entities operating in the
U.S. with respect to their trading in physical commodities, such as precious
metals, may further impact the price of gold in the U.S.
The Trust
is a passive investment vehicle. This means that the value of your Shares may be
adversely affected by Trust losses that, if the Trust had been actively managed,
it might have been possible to avoid.
The Trustee
does not actively manage the gold held by the Trust. This means that the Trustee
does not sell gold at times when its price is high, or acquire gold at low
prices in the expectation of future price increases. It also means that the
Trustee does not make use of any of the hedging techniques available to
professional gold investors to attempt to reduce the risks of losses resulting
from price decreases. Any losses sustained by the Trust will adversely affect
the value of your Shares.
The price
received upon the sale of Shares may be less than the value of the gold
represented by them.
The result
obtained by subtracting the Trust’s expenses and liabilities on any day from the
price of the gold owned by the Trust on that day is the net asset value of the
Trust which, when divided by the number of Shares outstanding on that day,
results in the NAV per Share.
Shares may
trade at, above or below their NAV. The NAV will fluctuate with changes in the
market value of the Trust’s assets. The trading prices of Shares will fluctuate
in accordance with changes in their NAVs as well as market supply and demand.
The amount of the discount or premium in the trading price relative to the NAV
may be influenced by non-concurrent trading hours between the major gold markets
and the Exchange. While the Shares will trade on the Exchange until 4:00 p.m.
(New York time), liquidity in the market for gold will be reduced after the
close of the major world gold markets, including London, Zurich and COMEX. As a
result, during this time, trading spreads, and the resulting premium or discount
on Shares, may widen.
An
investment in the Trust may be adversely affected by competition from other
methods of investing in gold.
The Trust
competes with other financial vehicles, including traditional debt and equity
securities issued by companies in the gold industry and other securities backed
by or linked to gold, direct investments in gold and investment vehicles similar
to the Trust. Market and financial conditions, and other conditions beyond the
Sponsor’s control, may make it more attractive to invest in other financial
vehicles or to invest in gold directly, which could affect the market
capitalization of the Trust and reduce the NAV. To the extent existing exchange
traded funds, or ETFs, or other exchange traded vehicles tracking gold markets
represent a significant proportion of demand for physical gold bullion, large
redemptions of the securities of these ETFs or other exchange traded vehicles
could negatively affect physical gold bullion prices and the price and
NAV.
The Trust
may be forced to sell gold earlier than anticipated if expenses are higher than
expected.
The Trust
may be forced to sell physical gold earlier than anticipated if the Trust’s
expenses are higher than estimated. Such accelerated sales may result in a
reduction of the NAV and the value of the Shares.
Because
the Trust is not a diversified investment, it may be more volatile than other
investments.
An
investment in the Trust is not intended as a complete investment plan. Because
the Trust principally only holds physical gold, an investment in the Trust may
be more volatile than an investment in a more broadly diversified portfolio.
Accordingly, the NAV may be more volatile than another investment vehicle with a
more broadly diversified portfolio and may fluctuate substantially over time. An
investment in the Trust may be deemed speculative and is not intended as a
complete investment program; therefore investors should review closely the
objective and strategy, the investment and operating restrictions and the
redemption provisions of the Trust as outlined herein and familiarize themselves
with the risks associated with an investment in the Trust.
The
liquidation of the Trust may occur at a time when the disposition of the Trust’s
gold will result in losses to investors in Shares.
The Trust
may have a limited duration. If certain events occur, at any time, the Trustee
will have to terminate the Trust. See “Description of the Shares and the Trust
Agreement—Amendment and Termination” for more information about the termination
of the Trust, including when events outside the control of the Sponsor, the
Trustee or the Shareholders may prompt the Trust’s termination.
Upon
termination of the Trust, the Trustee will sell gold in the amount necessary to
cover all expenses of liquidation, and to pay any outstanding liabilities of the
Trust. The remaining gold will be distributed among Authorized Participants
surrendering Shares. Any gold remaining in the possession of the Trustee after
60 days may be sold by the Trustee and the proceeds of the sale will be held by
the Trustee until claimed by any remaining holders of Shares. Sales of gold in
connection with the liquidation of the Trust at a time of low prices will likely
result in losses, or adversely affect your gains, on your investment in
Shares.
There may
be situations where an Authorized Participant is unable to redeem a Basket of
Shares. To the extent the value of gold decreases, these delays may result in a
decrease in the value of the gold the Authorized Participant will receive when
the redemption occurs, as well as a reduction in liquidity for all Shareholders
in the secondary market.
Although
Shares surrendered by Authorized Participants in Basket-size aggregations are
redeemable in exchange for the underlying amount of gold, redemptions may be
suspended during any period while regular trading on the Exchange is suspended
or restricted, or in which an emergency exists that makes it reasonably
impracticable to deliver, dispose of, or evaluate gold. If any of these events
occurs at a time when an Authorized Participant intends to redeem Shares, and
the price of gold decreases before such Authorized Participant is able again to
surrender Shares for redemption, such Authorized Participant will sustain a loss
with respect to the amount that it would have been able to obtain in exchange
for the gold received from the Trust upon the redemption of its Shares, had the
redemption taken place when such Authorized Participant originally intended it
to occur. As a consequence, Authorized Participants may reduce their trading in
Shares during periods of suspension, decreasing the number of potential buyers
of Shares in the secondary market and, therefore, decreasing the price a
Shareholder may receive upon sale.
The
liquidity of the Shares may also be affected by the withdrawal from
participation of Authorized Participants.
In the event
that one or more Authorized Participants that have substantial interests in
Shares withdraw from participation, the liquidity of the Shares will likely
decrease which could adversely affect the market price of the Shares and result
in your incurring a loss on your investment.
Authorized
Participants with large holdings may choose to terminate the
Trust.
Holders of
75% of the Shares have the power to terminate the Trust. This power may be
exercised by a relatively small number of holders. If it is so exercised,
investors who wished to continue to invest in gold through the vehicle of the
Trust will have to find another vehicle, and may not be able to find another
vehicle that offers the same features as the Trust.
The lack
of an active trading market for the Shares may result in losses on your
investment at the time of disposition of your Shares.
Although
Shares are listed for trading on the Exchange, you should not assume that an
active trading market for the Shares will develop or be maintained. If you need
to sell your Shares at a time when no active market for them exists, such lack
of an active market will most likely adversely affect the price you receive for
your Shares (assuming you are able to sell them).
If the
process of creation and redemption of Baskets encounters any unanticipated
difficulties, the possibility for arbitrage transactions intended to keep the
price of the Shares closely linked to the price of gold may not exist and, as a
result, the price of the Shares may fall or otherwise diverge from
NAV.
If the
processes of creation and redemption of Shares (which depend on timely transfers
of gold to and by the Custodian) encounter any unanticipated difficulties,
potential market participants, such as the Authorized Participants and their
customers, who would otherwise be willing to purchase or redeem Baskets to take
advantage of any arbitrage opportunity arising from discrepancies between the
price of the Shares and the price of the underlying gold may not take the risk
that, as a result of those difficulties, they may not be able to realize the
profit they expect. If this is the case, the liquidity of the Shares may decline
and the price of the Shares may fluctuate independently of the price of gold and
may fall or otherwise diverge from NAV.
As an
owner of Shares, you will not have the rights normally associated with ownership
of other types of shares.
Shares are
not entitled to the same rights as shares issued by a corporation. By acquiring
Shares, you are not acquiring the right to elect directors, to receive
dividends, to vote on certain matters regarding the issuer of your Shares or to
take other actions normally associated with the ownership of shares of a
corporation. You will only have the limited rights described under “Description
of the Shares and the Trust Agreement.”
As an
owner of Shares, you will not have the protections normally associated with
ownership of shares in an investment company registered under the Investment
Company Act of 1940, as amended, or the protections afforded by the Commodity
Exchange Act of 1936, as amended.
The Trust is
not registered as an investment company for purposes of United States federal
securities laws, and is not subject to regulation by the SEC as an investment
company. Consequently, the owners of Shares do not have the regulatory
protections provided to investors in registered investment companies. For
example, the provisions of the Investment Company Act that limit transactions
with affiliates, prohibit the suspension of redemptions (except under certain
limited circumstances) or limit sales loads, among others, do not apply to the
Trust.
The Trust
does not hold or trade in commodity futures contracts, “commodity interests”, or
any other instruments regulated by the CEA, as administered by the CFTC and the
National Futures Association (the “NFA”). Furthermore, the Trust is not a
commodity pool for purposes of the CEA and the Shares are not “commodity
interests”. Consequently, the Trustee and Sponsor are not subject to
registration as commodity pool operators or commodity trading advisors with
respect to the Trust or the Shares. The owners of Shares do not receive the CEA
disclosure document and certified annual report required to be delivered by a
registered commodity pool operator or a commodity trading advisor with respect
to the Trust, and the owners of Shares do not have the regulatory protections
provided to investors in commodity pools operated by registered commodity pool
operators or advised by commodity trading advisors.
The value
of the Shares will be adversely affected if gold owned by the Trust is lost or
damaged in circumstances in which the Trust is not in a position to recover the
corresponding loss.
The
Custodian is responsible to the Trust for loss or damage to the Trust’s gold
only under limited circumstances. The agreements with the Custodian contemplate
that the Custodian will be responsible to the Trust only if it acts with
negligence, fraud or in willful default of its obligations under those
agreements. The Custodian’s liability will not exceed the market value of the
gold credited to the Trust Unallocated Account and the Trust Allocated Account
at the time such negligence, fraud or willful default is either discovered by or
notified to the Custodian (such market value calculated using the nearest
available LBMA Gold Price PM following the occurrence of such negligence, fraud
or willful default), provided that, in the case of such discovery by or
notification to the Custodian, the Custodian notifies the Sponsor and the
Trustee promptly after any discovery of such negligence, fraud or willful
default. Furthermore, the Custodian is not liable for any delay in performance,
or for the non-performance, of any of its obligations under the Custody
Agreements by reason of any cause beyond the Custodian’s reasonable control,
including any act of God or war or terrorism, any breakdown, malfunction or
failure of, or connected with, any communication, computer, transmission,
clearing or settlement facilities, industrial action, or acts, rules and
regulations of any governmental or supra national bodies or authorities or any
relevant regulatory or self-regulatory organization.
In addition,
because the Custody Agreements are governed by English law, the holders of the
Shares may have no rights against the Custodian and any rights they may have
against the Custodian will be different from, and may be more limited than,
those that could have been available to them under the laws of a different
jurisdiction. The choice of English law to govern the Custody Agreements,
however, is not expected to affect any rights that the holders of the Shares may
have against the Trust or the Trustee.
Moreover,
the Trust may not be in a position to recover insurance proceeds in the event of
any loss with respect to its gold. The Trust does not insure its gold. The
Custodian maintains insurance with regard to its business on such terms and
conditions as it considers appropriate, which does not cover the full amount of
gold held in custody. The Trust is not a beneficiary of any such insurance and
does not have the ability to dictate the existence, nature or amount of
coverage. Therefore, Shareholders cannot be assured that the Custodian will
maintain adequate insurance or any insurance with respect to the gold held by
the Custodian on behalf of the Trust. The Custodian and the Trustee do not
require any direct or indirect subcustodians to be insured or bonded with
respect to their custodial activities or in respect of the gold held by them on
behalf of the Trust. Consequently, a loss may be suffered with respect to the
Trust’s gold which is not covered by insurance and for which no person is liable
in damages.
Any loss of
gold owned by the Trust will result in a corresponding loss in the net asset
value of the Trust and it is reasonable to expect that such loss will also
result in a decrease in the value at which the Shares are traded on the
Exchange.
Although
the relationship between the Custodian and the Trustee concerning the Trust’s
allocated gold is expressly governed by English law, a court hearing any legal
dispute concerning that arrangement may disregard that choice of law and apply
U.S. law, in which case the ability of the Trust to seek legal redress against
the Custodian may be frustrated.
The
obligations of the Custodian under the Custody Agreements are governed by
English law. The Trust is a New York common law trust. Any United States, New
York or other court situated in the United States may have difficulty
interpreting English law (which, insofar as it relates to custody arrangements,
is largely derived from court rulings rather than statute), London Bullion
Market Association (LBMA) rules or the customs and practices in the London
custody market. It may be difficult or impossible for the Trust to sue the
Custodian in a United States, New York or other court situated in the United
States. In addition, it may be difficult, time consuming and/or expensive for
the Trust to enforce in a foreign court a judgment rendered by a United States,
New York or other court situated in the United States.
Shareholders
and Authorized Participants lack the right under the Custody Agreements to
assert claims directly against the Custodian, which significantly limits their
options for recourse.
Neither the
Shareholders nor any Authorized Participant will have a right under the Custody
Agreements to assert a claim of the Trustee against the Custodian. Claims under
the Custody Agreements may only be asserted by the Trustee on behalf of the
Trust.
Gold held
in the Trust Unallocated Account and any Authorized Participant’s unallocated
gold account will not be segregated from the Custodian’s assets. If the
Custodian becomes insolvent, its assets may not be adequate to satisfy a claim
by the Trust or any Authorized Participant. In addition, in the event of the
Custodian’s insolvency, there may be a delay and costs incurred in identifying
the gold bars held in the Trust Allocated Account.
Gold which
is part of a deposit for a purchase order or part of a redemption distribution
will be held for a time in the Trust Unallocated Account and, previously or
subsequently in, the unallocated gold account of the purchasing or redeeming
Authorized Participant. During those times, the Trust and the Authorized
Participant, as the case may be, will have no proprietary rights to any specific
bars of gold held by the Custodian and will each be an unsecured creditor of the
Custodian with respect to the amount of gold held in such unallocated accounts.
In addition, if the Custodian fails to allocate the Trust’s gold in a timely
manner, in the proper amounts or otherwise in accordance with the terms of the
Trust Unallocated Account Agreement, or if a subcustodian fails to so segregate
gold held by it on behalf of the Trust, unallocated gold will not be segregated
from the Custodian’s assets, and the Trust will be an unsecured creditor of the
Custodian with respect to the amount so held in the event of the insolvency of
the Custodian. In the event the Custodian becomes insolvent, the Custodian’s
assets might not be adequate to satisfy a claim by the Trust or the Authorized
Participant for the amount of gold held in their respective unallocated gold
accounts.
In the event
of the insolvency of the Custodian, a liquidator may seek to freeze access to
the gold held in all of the accounts held by the Custodian, including the Trust
Allocated Account. Although the Trust would retain legal title to the allocated
gold bars, the Trust could incur expenses in connection with obtaining control
of the allocated gold bars, and the assertion of a claim by such liquidator for
unpaid fees could delay creations and redemptions of Baskets.
From time
to time subcustodians may be employed by the Custodian to provide temporary
custody and safekeeping of the Trust’s gold. The obligations of any subcustodian
of the Trust’s gold are not determined by contractual arrangements but by LBMA
rules and London bullion market customs and practices, which may prevent the
Trust’s recovery of damages for losses on its gold custodied with
subcustodians.
Gold bars
may be held by one or more subcustodians appointed by the Custodian, or employed
by the subcustodians appointed by the Custodian, until it is transported to the
Custodian’s London vault premises. Under the Trust Allocated Account Agreement,
except for an obligation on the part of the Custodian to use commercially
reasonable efforts to obtain delivery of the Trust’s gold bars from any
subcustodians appointed by the Custodian, the Custodian is not liable for the
acts or omissions of its subcustodians unless the selection of such
subcustodians was made negligently or in bad faith. There are expected to be no
written contractual arrangements between subcustodians that hold the Trust’s
gold bars and the Trustee or the Custodian, because traditionally such
arrangements are based on the LBMA’s rules and on the customs and practices of
the London bullion market. In the event of a legal dispute with respect to or
arising from such arrangements, it may be difficult to define such customs and
practices. The LBMA’s rules may be subject to change outside the control of the
Trust. Under English law, neither the Trustee nor the Custodian would have a
supportable breach of contract claim against a subcustodian for losses relating
to the safekeeping of gold. If the Trust’s gold bars are lost or damaged while
in the custody of a subcustodian, the Trust may not be able to recover damages
from the Custodian or the subcustodian.
Because
neither the Trustee nor the Custodian oversees or monitors the activities of
subcustodians who may temporarily hold the Trust’s gold bars until transported
to the Custodian’s London vault, failure by the subcustodians to exercise due
care in the safekeeping of the Trust’s gold bars could result in a loss to the
Trust.
Under the
Trust Allocated Account Agreement, the Custodian agreed that it will hold all of
the Trust’s gold bars in its own vault premises except when the gold bars have
been allocated in a vault other than the Custodian’s vault premises, and in such
cases the Custodian agreed that it will use commercially reasonable efforts
promptly to transport the gold bars to the Custodian’s vault, at the Custodian’s
cost and risk. Nevertheless, there may be periods of time when some portion of
the Trust’s gold bars will be held by one or more subcustodians appointed by the
Custodian or by a subcustodian of such subcustodian.
The
Custodian is required under the Trust Allocated Account Agreement to use
reasonable care in appointing its subcustodians but otherwise has no other
responsibility in relation to the subcustodians appointed by it. These
subcustodians may in turn appoint further subcustodians, but the Custodian is
not responsible for the appointment of these further subcustodians. The
Custodian does not undertake to monitor the performance by subcustodians of
their custody functions or their selection of further subcustodians. The Trustee
does not undertake to monitor the performance of any subcustodian. Furthermore,
the Trustee may have no right to visit the premises of any subcustodian for the
purposes of examining the Trust’s gold bars or any records maintained by the
subcustodian, and no subcustodian will be obligated to cooperate in any review
the Trustee may wish to conduct of the facilities, procedures, records or
creditworthiness of such subcustodian.
In addition,
the ability of the Trustee to monitor the performance of the Custodian may be
limited because under the Custody Agreements the Trustee has only limited rights
to visit the premises of the Custodian for the purpose of examining the Trust’s
gold bars and certain related records maintained by the Custodian.
The value
of the Shares will be adversely affected if any services provided to the Trust
by the Sponsor, the Custodian or the Trustee are suddenly or unexpectedly
terminated.
Upon the
sudden or unexpected termination, resignation or removal of any service provider
to the Trust, it is possible that a comparable replacement service provider will
be available or able to be appointed without material delay. Any such
unavailability or delay could cause the Trustee to expend assets of the Trust
and consequently, the NAV of the Shares, in finding a replacement service
provider.
The value
of the Shares will be adversely affected if the Trust is required to indemnify
the Sponsor, the Trustee, or the Custodian as contemplated in the Trust
Agreement and the Custody Agreements.
Under the
Trust Agreement, the Sponsor and the Trustee each have the right to be
indemnified from the Trust for any liability or expense it incurs without gross
negligence, bad faith, willful misconduct or willful malfeasance on its part.
Similarly, the Custody Agreements provide for indemnification of the Custodian
by the Trust under certain circumstances. This means that it may be necessary to
sell assets of the Trust in order to cover losses or liability suffered by the
Sponsor, the Trustee or the Custodian. Any sale of that kind would reduce the
net asset value of the Trust and the value of the Shares.
The
service providers engaged by the Trust may not carry adequate insurance to cover
claims against them by the Trust, which could adversely affect the value of net
assets of the Trust.
The Trustee,
the Custodian and other service providers engaged by the Trust maintain such
insurance as they deem adequate with respect to their respective businesses.
Investors cannot be assured that any of the aforementioned parties will maintain
any insurance with respect to the Trust’s assets held or the services that such
parties provide to the Trust and, if they maintain insurance, that such
insurance is sufficient to satisfy any losses incurred by them in respect of
their relationship with the Trust. Accordingly, the Trust will have to rely on
the efforts of the service provider to recover from their insurer compensation
for any losses incurred by the Trust in connection with such
arrangements.
The
Sponsor and its affiliates manage other funds, including those that invest in
physical gold bullion or other precious metals, and conflicts of interest may
occur, which may reduce the value of the net assets of the Trust, the NAV and
the trading price of the Shares.
The Sponsor
or its affiliates and associates currently engage in, and may in the future
engage, in the promotion, management or investment management of other accounts,
funds or trusts that invest primarily in physical gold bullion or other precious
metals. Although officers and professional staff of the Sponsor’s management
intend to devote as much time to the Trust as is deemed appropriate to perform
their duties, the Sponsor’s management may allocate their time and services
among the Trust and the other accounts, funds or trusts. The Sponsor will
provide any such services to the Trust on terms not less favorable to the Trust
than would be available from a non-affiliated party.
The
Sponsor and the Trustee may agree to amend the Trust Agreement without the
consent of the Shareholders.
The Sponsor
and the Trustee may agree to amend the Trust Agreement, including to increase
the Sponsor’s Fee, without Shareholder consent. If an amendment imposes new fees
and charges or increases existing fees or charges, including the Sponsor’s Fee
(except for taxes and other governmental charges, registration fees or other
such expenses, or prejudices a substantial right of Shareholders), it will
become effective for outstanding Shares 30 days after notice of such amendment
is given to registered owners. Shareholders that are not registered owners
(which most shareholders will not be) may not receive specific notice of a fee
increase other than through an amendment to the prospectus. Moreover, at the
time an amendment becomes effective, by continuing to hold Shares, Shareholders
are deemed to agree to the amendment and to be bound by the Trust Agreement as
amended without specific agreement to such increase (other than through the
“negative consent” procedure described above).
Shareholders
could incur a tax liability without an associated distribution of the
Trust.
In the
normal course of business it is possible that the Trust could incur a taxable
gain in connection with the sale of gold that is otherwise not associated with a
distribution. In the event that this occurs, Shareholders may be subject to tax
due to the grantor trust status of the Trust even though there is not a
corresponding distribution from the Trust.
The Trust
may be negatively impacted by the effects of the spread of illnesses or other
public health emergencies on the global economy and the markets and service
providers relevant to the performance of the Trust.
An outbreak
of infectious respiratory illness caused by a novel coronavirus known as
COVID-19 was first detected in China in December 2019 and has now been spread
globally. This outbreak has resulted in travel restrictions, closed
international borders, enhanced health screenings at ports of entry and
elsewhere, disruption of and delays in healthcare service preparation and
delivery, prolonged quarantines, cancellations, supply chain disruptions, and
lower consumer demand, layoffs, defaults and other significant economic impacts,
as well as general concern and uncertainty. The impact of this outbreak has
adversely affected the economies of many nations and the entire global economy
and may impact individual issuers and capital markets in ways that cannot
necessarily be foreseen. Other infectious illness outbreaks that may arise in
the future could have similar impacts. Public health crises caused by the
outbreak may exacerbate other pre-existing political, social and economic risks
in certain countries or globally.
The COVID-19
outbreak will have serious negative effects on social, economic and financial
systems, including significant uncertainty and volatility in the financial
markets. For instance, the suspension of operations of mines, refineries and
vaults that extract, produce or store gold, restrictions on travel that delay or
prevent the transportation of gold, and an increase in demand for gold may
disrupt supply chains for gold, which could cause secondary market spreads to
widen and compromise our ability to make settlements on time. Any inability of
the Trust to issue or redeem Shares or the Custodian or any sub-custodian to
receive or deliver gold as a result of the outbreak will negatively affect the
Trust’s operations.
The duration
of the outbreak and its effects cannot be determined with certainty. A prolonged
outbreak could result in an increase of the costs of the Trust, affect liquidity
in the market for gold as well as the correlation between the price of the
Shares and the net asset value of the Trust, any of which could adversely affect
the value of your Shares. In addition, the outbreak could also impair the
information technology and other operational systems upon which the Trust’s
service providers, including the Sponsor, the Trustee and the Custodian, rely,
and could otherwise disrupt the ability of employees of the Trust’s service
providers to perform essential tasks on behalf of the Trust. Governmental and
quasi-governmental authorities and regulators throughout the world have in the
past responded to major economic disruptions with a variety of fiscal and
monetary policy changes, including, but not limited to, direct capital infusions
into companies, new monetary programs and lower interest rates. An unexpected or
quick reversal of these policies, or the ineffectiveness of these policies, is
likely to increase volatility in the market for gold, which could adversely
affect the price of the Shares.
Further, the
outbreak could interfere with or prevent the determination of the applicable
benchmark price, which the Trustee uses to value the gold held by the Trust and
calculate the net asset value of the Trust. The outbreak could also cause the
closure of futures exchanges, which could eliminate the ability of Authorized
Participants to hedge purchases of Baskets, increasing trading costs of Shares
and resulting in a sustained premium or discount in the Shares. Each of these
outcomes would negatively impact the Trust.
The Trust
as well as the Sponsor and its service providers are vulnerable to the effects
of geopolitical events and the continuation of the war in Ukraine or other
hostilities
In
late February 2022, Russia launched an invasion of Ukraine, significantly
amplifying already existing geopolitical tensions among Russia and other
countries in the region and in the west. The responses of countries and
political bodies to Russia’s actions, the larger overarching tensions, and
Ukraine’s military response and the potential for wider conflict may increase
financial market volatility generally, have adverse effects on regional and
global economic markets, and cause volatility in the price of gold and the price
of the Shares. The conflict in Ukraine, along with global political fallout and
implications including sanctions, shipping disruptions, collateral war damage,
and a potential expansion of the conflict beyond Ukraine’s borders, could
disturb the gold market. On March 6, 2022, the LBMA suspended its accreditation
of six Russian precious metals refiners, hence suspending their access to the
world’s largest gold market.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Not
applicable.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not
applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
The Trust
was formed on August 24, 2017 (the “Date of Inception”) following an initial
deposit of gold. The Trust’s Shares have been listed on the NYSE Arca under the
symbol BAR since its initial public offering on August 31, 2017. The following
tables set out the range of high and low closing prices for the Shares as
reported for NYSE Arca transactions for each of the quarters during the fiscal
year ended June 30, 2021:
Fiscal
Year Ended June 30, 2022: Quarter Ended
|
|
High |
|
|
Low |
|
September 30, 2021 |
|
$ |
18.57 |
|
|
$ |
17.14 |
|
December 31, 2021 |
|
$ |
18.53 |
|
|
$ |
17.41 |
|
March 31, 2022 |
|
$ |
20.35 |
|
|
$ |
17.74 |
|
June 30, 2022 |
|
$ |
19.62 |
|
|
$ |
17.91 |
|
The number
of outstanding Shares of the Trust as of August 12, 2022 was
51,200,000.
Fiscal
Year Ended June 30, 2022: Monthly Share Price
The
following table sets forth for the period considered, the high and low closing
prices of the Shares, as reported for NYSE Arca transactions.
|
|
High |
|
|
Low |
|
July 2021 |
|
$ |
18.17 |
|
|
$ |
17.64 |
|
August 2021 |
|
$ |
18.07 |
|
|
$ |
17.17 |
|
September 2021 |
|
$ |
18.16 |
|
|
$ |
17.14 |
|
October 2021 |
|
$ |
17.93 |
|
|
$ |
17.41 |
|
November 2021 |
|
$ |
18.53 |
|
|
$ |
17.57 |
|
December 2021 |
|
$ |
18.15 |
|
|
$ |
17.55 |
|
January 2022 |
|
$ |
18.33 |
|
|
$ |
17.74 |
|
February 2022 |
|
$ |
18.95 |
|
|
$ |
17.88 |
|
March 2022 |
|
$ |
20.35 |
|
|
$ |
19.01 |
|
April 2022 |
|
$ |
19.62 |
|
|
$ |
18.71 |
|
May 2022 |
|
$ |
18.69 |
|
|
$ |
17.94 |
|
June 2022 |
|
$ |
18.56 |
|
|
$ |
17.91 |
|
Issuer
Purchase of Shares
The Trust
issues and redeems Shares only with Authorized Participants in exchange for
gold, only in aggregations of 50,000 Shares or integral multiples thereof. A
list of current Authorized Participants is available from the Sponsor or the
Trustee and is included in Item 7 of this report. Although the Trust does not
purchase Shares directly from its Shareholders in connection with the redemption
of Baskets, the Trust redeemed as follows during the fiscal year ended June 30,
2022:
Month |
|
Total number of Shares redeemed |
|
|
Average ounces of gold per Share |
|
July 2021 |
|
|
- |
|
|
|
- |
|
August 2021 |
|
|
- |
|
|
|
- |
|
September 2021 |
|
|
300,000 |
|
|
|
0.0099270 |
|
October 2021 |
|
|
10,400,000 |
|
|
|
0.0099259 |
|
November 2021 |
|
|
|
|
|
|
|
|
December 2021 |
|
|
- |
|
|
|
- |
|
January 2022 |
|
|
- |
|
|
|
- |
|
February 2022 |
|
|
- |
|
|
|
- |
|
March 2022 |
|
|
|
|
|
|
|
|
April 2022 |
|
|
- |
|
|
|
- |
|
May 2022 |
|
|
800,00 |
|
|
|
0.0099159 |
|
June 2022 |
|
|
- |
|
|
|
- |
|
Total |
|
|
11,500,000 |
|
|
|
0.0099253 |
|
Item 6. Selected Financial Data
The
following selected financial data for the reporting periods should be read in
conjunction with the Trust’s financial statements and related notes and
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2020 |
|
(Amounts in 000’s of US$, except per Share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
996,271 |
|
|
$ |
1,009,604 |
|
|
$ |
1,041,457 |
|
Total gain / (loss) on gold |
|
$ |
21,347 |
|
|
$ |
(9,997 |
) |
|
$ |
159,805 |
|
Change in net assets from operations |
|
$ |
19,620 |
|
|
$ |
(12,009 |
) |
|
$ |
158,612 |
|
Weighted average number of Shares (in
000’s) |
|
|
54,305 |
|
|
|
62,495 |
|
|
|
43,630 |
|
Net increase / (decrease) in net assets
per Share |
|
$ |
0.36 |
|
|
$ |
(0.19 |
) |
|
$ |
3.64 |
|
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This
information should be read in conjunction with the financial statements and
notes to the financial statements included with this report. The discussion and
analysis that follows may contain statements that relate to future events or
future performance. In some cases, such forward-looking statements can be
identified by terminology such as “may,” “should,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of
these terms or other comparable terminology. We remind readers that
forward-looking statements are merely predictions and therefore inherently
subject to uncertainties and other factors and involve known and unknown risks
that could cause the actual results, performance, levels of activity, or our
achievements, or industry results, to be materially different from any future
results, performance, levels of activity, or our achievements expressed or
implied by such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Trust undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.
Introduction.
The
GraniteShares Gold Trust (the “Trust”) is a trust formed under the laws of the
State of New York. The Trust does not have any officers, directors, or
employees, and is administered by The Bank of New York Mellon (the “Trustee”)
acting as trustee pursuant to the Depositary Trust Agreement (the “Trust
Agreement”) between the Trustee and GraniteShares LLC, the sponsor of the Trust
(the “Sponsor”). The Trust issues Shares representing fractional undivided
beneficial interests in its net assets. The assets of the Trust consist of gold
bullion held by a custodian as an agent of the Trust and responsible only to the
Trustee.
The Trust is
a passive investment vehicle and the objective of the Trust is for the value of
each Share to approximately reflect, at any given time, the price of the gold
bullion owned by the Trust, less the Trust’s liabilities (anticipated to be
principally for accrued operating expenses), divided by the number of
outstanding Shares. The Trust does not engage in any activities designed to
obtain a profit from, or ameliorate losses caused by, changes in the price of
gold.
The Trust
issues and redeems Shares only in exchange for gold, only in aggregations of
50,000 or integral multiples thereof (each, a “Basket”), and only in
transactions with registered broker-dealers or other securities market
participants not required to register as broker-dealers, such as a bank or other
financial institution, that (1) are participants in DTC and (2) have previously
entered into an agreement with the Trust governing the terms and conditions of
such issuance (such dealers, the “Authorized Participants”). As of the date of
this annual report the Authorized Participants that have signed an Authorized
Participant Agreement with the J.P. Morgan Securities Inc., Merrill Lynch
Professional Clearing Corp., and Virtu Financial BD, LLC.
Shares of
the Trust trade on the NYSE Arca under the symbol “BAR”.
Investing in
the Shares does not insulate the investor from certain risks, including price
volatility. The following graph illustrates the movement in the net asset value
(“NAV”) of the Shares against the corresponding gold price (per 1/100 of an oz.
of gold) since inception:
NAV per
Share(1) vs. 1/100th gold price from August 30, 2017 to
June 30, 2022
(1)
Adjusted for effect of stock split. The stock split was effective on March
7, 2019. See Note 1 to the Financial Statements.
Source:
Bloomberg
The
divergence of the NAV per Share from the gold price over time reflects the
cumulative effect of the Trust expenses that arise if an investment had been
held since inception.
Critical
Accounting Policy
The
financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements relies on estimates and assumptions
that impact the Trust’s financial position and results of operations. These
estimates and assumptions affect the Trust’s application of accounting policies.
Below we describe the valuation of gold bullion, a critical accounting policy
that we believe is important to understanding our results of operations and
financial position. In addition, please refer to Note 2 to the Financial
Statements for further discussion of our accounting policies.
Valuation
of Gold
Gold is held
by the Custodian on behalf of the Trust. Gold 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 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.
|
|
June 30, 2022 |
|
(Amounts in 000’s of US$) |
|
|
|
|
Investment in gold - cost |
|
$ |
870,362 |
|
Unrealized gain /
(loss) on investment in gold |
|
|
125,909 |
|
Investment in gold
- fair value |
|
$ |
996,271 |
|
Inspection
of Gold
Under the
Custody Agreements, the Trustee, the Sponsor and the Sponsor’s auditors and
inspectors may, only up to twice a year, visit the premises of the Custodian for
the purpose of examining the Trust’s gold and certain related records maintained
by the Custodian.
The Sponsor
has exercised its right to visit the Custodian in order to examine the gold and
the records maintained by them. The most recent inspection by Bureau Veritas, a
leading commodity inspection and testing company retained by the Sponsor, of the
Custodian was conducted as of July 01, 2022.
Liquidity
The Trust is
not aware of any trends, demands, conditions or events that are reasonably
likely to result in material changes to its liquidity needs. In exchange for a
fee (the “Sponsor’s Fee”), the Sponsor has agreed to assume most of the expenses
incurred by the Trust. As a result, the only expense of the Trust during the
period covered by this report was the Sponsor’s Fee. The Trust’s only source of
liquidity is its transfers and sales of gold.
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 not otherwise assumed by the
Sponsor. The Trustee will not sell gold to pay the Sponsor’s Fee but will pay
the Sponsor’s Fee through in-kind transfers of gold to the Sponsor. At June 30,
2022 the Trust did not have any cash balances.
Review of
Financial Results
Financial Highlights
|
|
June 30, 2022 |
|
(Amounts in 000’s of US$ except per share
data) |
|
|
|
|
Total gain / (loss) on gold |
|
$ |
21,347 |
|
Change in net assets from operations |
|
$ |
19,620 |
|
Net increase (decrease) in net assets per
share |
|
$ |
0.36 |
|
Fiscal year ended June 30,
2022
The Trust’s
NAV decreased from $1,009,450,266 on June 30, 2021, to $996,127,089 on June 30,
2022, a 1.32% decrease for the year. The decrease in the Trust’s NAV resulted
primarily from a reduction in outstanding Shares from 57,650,000 Shares on June
30, 2021, to 55,300,000 Shares on June 30, 2022, a result of 9,150,000 Shares
(183 Baskets) being created and 11,500,000 Shares (230 Baskets) being redeemed
during that period.
The NAV per
Share increased 2.86% from $17.51 on June 30, 2021, to $18.01 on June 30, 2022.
During that period the gold price increased 3.05% from $1,763.15 on June 30,
2021, to $1,817.00 on June 30, 2022. The Trust’s NAV per Share increased
slightly less than the price per ounce of gold on a percentage basis due to the
Sponsor’s Fee, which was $1,726,901 for the fiscal year, or 0.1749% of the
Trust’s assets on an annualized basis.
Fiscal year ended June 30,
2021
The Trust’s
NAV decreased from $1,041,316,068 on June 30, 2020, to 1,009,450,266 on June 30,
2021, a 3.1% decrease for the year. The decrease in the Trust’s NAV resulted
primarily from a reduction in outstanding Shares from 59,200,000 Shares on June
30, 2020, to 57,650,000 Shares on June 30, 2021, a result of 16,600,000 Shares
(332 Baskets) being created and 18,150,000 Shares (363 Baskets) being redeemed
during that period.
The NAV per
Share decreased 0.46% from $17.59 on June 30, 2020, to $17.51 on June 30, 2021.
During that period the gold price decreased 0.28% from $1,768.10 on June 28,
2020, to $1,763.15 on June 28, 2021. The Trust’s NAV per Share decreased
slightly more than the price per ounce of gold on a percentage basis due to the
Sponsor’s Fee, which was $2,012,108 for the fiscal year, or 0.1749% of the
Trust’s assets on an annualized basis.
Fiscal year ended June 30,
2020
The Trust’s
NAV increased from $545,511,107 on June 30, 2019, to $1,041,316,068 on June 30,
2020, a 91% increase for the year. The increase in the Trust’s NAV resulted
primarily from an increase in outstanding Shares, which rose from 38,850,000
Shares on June 30, 2019, to 59,200,000 Shares on June 30, 2020, a result of
23,500,000 Shares (470 Baskets) being created and 3,150,000 Shares (63 Baskets)
being redeemed during that period.
The NAV per
Share increased 25.28% from $14.04 on June 30, 2019, to $17.59 on June 30, 2020.
During that period the gold price increased 25.49% from $1,409.00 on June 30,
2019, to $1,768.10 on June 28, 2020. The Trust’s NAV per Share increased
slightly less than the price per ounce of gold on a percentage basis due to the
Sponsor’s Fee, which was $1,193,277 for the fiscal year, or 0.1749% of the
Trust’s assets on an annualized basis.
Off-Balance
Sheet Arrangements
The Trust is
not a party to any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk
The Trust
Agreement does not authorize the Trustee to borrow for payment of the Trust’s
ordinary expenses. The Trust does not engage in transactions in foreign
currencies which could expose the Trust or holders of Shares to any foreign
currency related market risk. The Trust invests in no derivative financial
instruments and has no foreign operations or long-term debt
instruments.
Item 8. Financial Statements and Supplementary Data
(Unaudited)
Quarterly
Income Statements
Fiscal
year ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Year
ended |
|
(Amounts in 000’s of US$,
except for Share and per Share data) |
|
September 30, 2021 |
|
|
December 31, 2021 |
|
|
March 30, 2022 |
|
|
June 30, 2022 |
|
|
June 30, 2022 |
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsor’s
Fee |
|
$ |
461 |
|
|
$ |
407 |
|
|
$ |
414 |
|
|
$ |
445 |
|
|
$ |
1,727 |
|
Total expenses |
|
|
461 |
|
|
|
407 |
|
|
|
414 |
|
|
|
445 |
|
|
|
1,727 |
|
Net investment loss |
|
|
(461 |
) |
|
|
(407 |
) |
|
|
(414 |
) |
|
|
(445 |
) |
|
|
(1,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAINS / (LOSSES) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain/(loss) on gold transferred to
pay expenses |
|
|
68 |
|
|
|
52 |
|
|
|
63 |
|
|
|
72 |
|
|
|
255 |
|
Realized gain/(loss) on gold distributed for
the redemption of Shares |
|
|
600 |
|
|
|
23,465 |
|
|
|
- |
|
|
|
1,923 |
|
|
|
25,988 |
|
Change in unrealized
gain / (loss) on investment in gold |
|
|
(13,472 |
) |
|
|
17,987 |
|
|
|
61,511 |
|
|
|
(70,922 |
) |
|
|
(4,896 |
) |
Total gain / (loss) on
gold |
|
|
(12,804 |
) |
|
|
41,504 |
|
|
|
61,574 |
|
|
|
(68,927 |
) |
|
|
21,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net assets
from operations |
|
$ |
(13,265 |
) |
|
$ |
41,097 |
|
|
$ |
61,160 |
|
|
$ |
(69,372 |
) |
|
$ |
19,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase / (decrease) in net assets per
Share |
|
$ |
(0.23 |
) |
|
$ |
0.79 |
|
|
$ |
1.18 |
|
|
$ |
(1.26 |
) |
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Shares |
|
|
58,866 |
|
|
|
51,716 |
|
|
|
51,656 |
|
|
|
54,930 |
|
|
|
54,305 |
|
Fiscal
year ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Year
ended |
|
(Amounts in 000’s of US$,
except for Share and per Share data) |
|
September 30, 2020 |
|
|
December 31, 2020 |
|
|
March 30, 2021 |
|
|
June 30, 2021 |
|
|
June 30, 2021 |
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsor’s
Fee |
|
$ |
548 |
|
|
$ |
527 |
|
|
$ |
468 |
|
|
$ |
469 |
|
|
$ |
2,012 |
|
Total expenses |
|
|
548 |
|
|
|
527 |
|
|
|
468 |
|
|
|
469 |
|
|
|
2,012 |
|
Net investment loss |
|
|
(548 |
) |
|
|
(527 |
) |
|
|
(468 |
) |
|
|
(469 |
) |
|
|
(2,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAINS / (LOSSES) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain/(loss) on gold transferred to
pay expenses |
|
|
119 |
|
|
|
112 |
|
|
|
78 |
|
|
|
68 |
|
|
|
377 |
|
Realized gain/(loss) on gold distributed for
the redemption of Shares |
|
|
1,788 |
|
|
|
42,777 |
|
|
|
5,248 |
|
|
|
10,502 |
|
|
|
60,315 |
|
Change in unrealized
gain / (loss) on investment in gold |
|
|
63,577 |
|
|
|
(43,021 |
) |
|
|
(127,177 |
) |
|
|
35,932 |
|
|
|
(70,689 |
) |
Total gain / (loss) on
gold |
|
|
65,484 |
|
|
|
(132 |
) |
|
|
(121,851 |
) |
|
|
46,502 |
|
|
|
(9,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net assets
from operations |
|
$ |
64,936 |
|
|
$ |
(659 |
) |
|
$ |
(122,319 |
) |
|
$ |
46,033 |
|
|
$ |
(12,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase / (decrease) in net assets per
Share |
|
$ |
0.99 |
|
|
$ |
(0.01 |
) |
|
$ |
(2.01 |
) |
|
$ |
0.77 |
|
|
$ |
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Shares |
|
|
65,547 |
|
|
|
63,291 |
|
|
|
60,779 |
|
|
|
59,766 |
|
|
|
62,495 |
|
Fiscal
year ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Year
ended |
|
(Amounts in 000’s of US$,
except for Share and per Share data) |
|
September 30, 2019 |
|
|
December 31, 2019 |
|
|
March 30, 2020 |
|
|
June 30, 2020 |
|
|
June 30, 2020 |
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsor’s
Fee |
|
$ |
256 |
|
|
$ |
256 |
|
|
$ |
288 |
|
|
$ |
393 |
|
|
$ |
1,193 |
|
Total expenses |
|
|
256 |
|
|
|
256 |
|
|
|
288 |
|
|
|
393 |
|
|
|
1,193 |
|
Net investment loss |
|
|
(256 |
) |
|
|
(256 |
) |
|
|
(288 |
) |
|
|
(393 |
) |
|
|
(1,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAINS / (LOSSES) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain/(loss) on gold transferred to
pay expenses |
|
|
29 |
|
|
|
34 |
|
|
|
46 |
|
|
|
62 |
|
|
|
171 |
|
Realized gain/(loss) on gold distributed for
the redemption of Shares |
|
|
- |
|
|
|
4,663 |
|
|
|
2,068 |
|
|
|
- |
|
|
|
6,731 |
|
Change in unrealized
gain / (loss) on investment in gold |
|
|
29,097 |
|
|
|
10,421 |
|
|
|
31,394 |
|
|
|
81,991 |
|
|
|
152,903 |
|
Total gain / (loss) on
gold |
|
|
29,126 |
|
|
|
15,118 |
|
|
|
33,508 |
|
|
|
82,053 |
|
|
|
159,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net assets
from operations |
|
$ |
28,870 |
|
|
$ |
14,862 |
|
|
$ |
33,220 |
|
|
$ |
81,660 |
|
|
$ |
158,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase / (decrease) in net assets per
Share |
|
$ |
0.73 |
|
|
$ |
0.38 |
|
|
$ |
0.79 |
|
|
$ |
1.56 |
|
|
$ |
3.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Shares |
|
|
39,797 |
|
|
|
39,421 |
|
|
|
42,134 |
|
|
|
52,203 |
|
|
|
43,630 |
|
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
The Trust
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in its Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information
is accumulated and communicated to the Chief Executive Officer and Chief
Financial Officer of the Sponsor, and to the audit committee, as appropriate, to
allow timely decisions regarding required disclosure.
Under the
supervision and with the participation of the Chief Executive Officer and the
Chief Financial Officer of the Sponsor, the Sponsor conducted an evaluation of
the Trust’s disclosure controls and procedures, as defined under Exchange Act
Rule 13a-15(e) and 15d-15(e). Based on this evaluation, the Chief Executive
Officer and the Chief Financial Officer of the Sponsor concluded that, as of
June 30, 2022, the Trust’s disclosure controls and procedures were
effective.
There have
been no changes in the Trust’s or Sponsor’s internal control over financial
reporting that occurred during the Trust’s recently completed fiscal quarter
ended June 30, 2022 that have materially affected, or are reasonably likely to
materially affect, the Trust’s or Sponsor’s internal control over financial
reporting.
Management’s
Report on Internal Control over Financial Reporting
The
Sponsor’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined under Exchange Act Rules
13a-15(f) and 15d-15(f). The Trust’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States. Internal control over financial reporting includes those policies
and procedures that:
(1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the Trust’s assets;
(2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that the Trust’s receipts and expenditures are being
made only in accordance with appropriate authorizations; and
(3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Trust’s assets that could have a
material effect on the financial statements.
Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
ineffective because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
The Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer of the
Sponsor assessed the effectiveness of the Trust’s internal control over
financial reporting as of June 30, 2022. In making this assessment, they used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control—Integrated Framework
(2013). Their assessment included an evaluation of the design of the Trust’s
internal control over financial reporting and testing of the operational
effectiveness of its internal control over financial reporting. Based on their
assessment and those criteria, the Chief Executive Officer and Chief Financial
Officer of the Sponsor concluded that the Trust maintained effective internal
control over financial reporting as of June 30, 2022.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
Management of the Trust’s Sponsor and Shareholders of
GraniteShares
Gold Trust
Opinion
on Internal Control Over Financial Reporting
We have
audited GraniteShares Gold Trust’s (the Trust) internal control over financial
reporting as of June 30, 2022, based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Trust
maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2022, based on the criteria established in Internal
Control—Integrated Framework (2013) issued by COSO.
We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the statements of assets and
liabilities, including the schedules of investments, as of June 30, 2022 and
2021, and the related statements of operations, changes in net assets, and the
financial highlights for each of the years in the three-year period ended June
30, 2022, and the related notes (collectively referred to as the financial
statements) of the Trust, and our report dated August 12, 2022 expressed an
unqualified opinion.
Basis for
Opinion
The Trust’s
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Trust’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Trust in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted
our audit in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition
and Limitations of Internal Control Over Financial Reporting
A company’s
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of
the inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
TAIT,
WELLER & BAKER LLP
Philadelphia,
Pennsylvania
August
12, 2022
Item 9B. Other Information
Not
applicable.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
The Trust
does not have any directors, officers or employees. The creation and operation
of the Trust has been arranged by the Sponsor. The Sponsor is not governed by a
board of directors. The principals and executive officers of the Sponsor are as
follows:
William
Rhind has been the Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”) of the Sponsor since its inception on January 6, 2017. Prior to
forming the Sponsor and becoming its CEO and CFO, Mr. Rhind was the CEO of World
Gold Trust Services, LLC (“WGTS”) from September 2014 to February 2016. WGTS is
the sponsor of SPDR® Gold Trust, the largest gold fund in the world, and is a
wholly-owned subsidiary of the World Gold Council, a market development
organization for the gold industry. Mr. Rhind also served as the Managing
Director, Institutional Investment, of the World Gold Council from September
2013 to February 2016. From March 2007 to September 2013, Mr. Rhind was employed
by ETF Securities Ltd (“ETF Securities”), an independent exchange-traded product
provider, in a number of leadership roles, including as Managing Director from
June 2009 to September 2013. In that role, Mr. Rhind managed the company’s U.S.
exchange traded fund business. Prior to joining ETF Securities, Mr. Rhind was a
Principal for the iShares unit of Barclays Global Investors. He began his career
as an investment banking analyst at Nomura International in London. Mr. Rhind
earned a Bachelor of Arts in Modern Languages (French & Russian) and
European Studies from the University of Bath in England. Mr. Rhind is 43 years
old.
Benoit
Autier has been the Chief Accounting Officer (“CAO”) and Head of
Products of the Sponsor since its inception on January 6, 2017. Mr. Autier was
previously the Head of Product Management for the World Gold Council from
September 2015 to October 2016. From January 2015 to September 2015, Mr. Autier
was the President of ETF Securities Advisors, LLC, an affiliate of ETF
Securities. As President, Mr. Autier managed all aspects of implementation of
ETF Securities’ platform for funds registered under the Investment Company Act
of 1940, as amended. Mr. Autier was also the Head of Product Management of ETF
Securities from July 2005 to September 2015. Mr. Autier designed and implemented
operational processes for over 300 European and U.S. financial products in that
role. Mr. Autier previously was employed by Flow Traders, one of the leading
market makers in Europe for exchange-traded commodities; by KPMG in Paris as a
senior consultant; and by the Ernst and Young Corporate Finance. Mr. Autier
holds a Masters in Finance from London Business School. Mr. Autier is 47 years
old.
Item 11. Executive Compensation
The Trust
has no directors or executive officers. The only ordinary expense paid by the
Trust is the Sponsor’s Fee.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters Security Ownership of Certain
Beneficial Owners
The Sponsor
has no knowledge of any person being the direct or indirect beneficial owner of
more than 5% of the Shares of the Trust.
Under the
Trust Agreement, Shareholders have no voting rights, except in limited
circumstances. The Trustee may terminate the Trust upon the agreement of
Shareholders owning at least 75% of the outstanding Shares.
Security
Ownership of Management
Not
applicable.
Change In
Control
Neither the
Sponsor nor the Trustee knows of any arrangements which may subsequently result
in a change in control of the Trust.
Item 13. Certain Relationships and Related Transactions, and
Director Independence
The Trust
has no directors or executive officers.
Item 14. Principal Accounting Fees and Services
Fees for
services performed by Tait, Weller & Baker LLP for the fiscal years ended
June 30, 2022 and 2021 specifically:
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
|
|
|
|
|
|
Audit fees – Tait, Weller
& Baker |
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
Audit Fees
are fees paid by the Sponsor to Tait, Weller & Baker LLP for professional
services for the audit of the Trust’s financial statements included in the Form
10-K and review of financial statements included in the Form 10-Qs, and for
services that are normally provided by the accountants in connection with
regulatory filings or engagements.
Pre-Approval
Policies and Procedures
As
referenced in Item 10 above, the Trust has no board of directors, and as a
result, has no pre-approval policies or procedures with respect to fees paid to
Tait, Weller & Baker LLP. Such determinations are made by the
Sponsor.
PART IV
Item 15. Exhibits, Financial Statement Schedules
1.
Financial Statements
See Index to
Financial Statements on Page F-1 for a list of the financial statements being
filed herein.
2.
Financial Statement Schedules
Schedules
have been omitted since they are either not required, not applicable, or the
information has otherwise been included.
3.
Exhibits
Exhibit
No. |
|
Description |
4.1 |
|
Depositary
Trust Agreement between GraniteShares LLC, as sponsor, and The Bank of New
York Mellon, as trustee(1) |
4.2 |
|
Form
of Authorized Participant Agreement(2) |
4.3 |
|
Form
of Certificate of Shares of the Trust (included as Exhibit A to the
Depositary Trust Agreement)(1) |
10.1 |
|
Allocated
Gold Account Agreement(1) |
10.2 |
|
Unallocated
Gold Account Agreement(1) |
10.3 |
|
Marketing
Agent Services Agreement between GraniteShares LLC and ALPS Distributors,
Inc.(3) |
10.4 |
|
License
Agreement between The Bank of New York Mellon and GraniteShares
LLC(1) |
31.1 |
|
Chief Executive Officer and Chief Financial Officer’s
Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002* |
31.2 |
|
Chief Accounting Officer’s Certificate, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002* |
32.1 |
|
Chief Executive Officer and Chief Financial Officer’s
Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002* |
32.2 |
|
Chief Accounting Officer’s Certificate, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002* |
101.INS |
|
Inline
XBRL Instance Document |
101.SCH |
|
Inline
XBRL
Taxonomy Extension Schema Document |
101.CAL |
|
Inline
XBRL Taxonomy Extension Calculation Document |
101.DEF |
|
Inline
XBRL Taxonomy Extension Definitions Document |
101.LAB |
|
InlineXBRL
Taxonomy Extension Labels Document |
101.PRE |
|
Inline
XBRL Taxonomy Extension Presentation Document |
104 |
|
Cover
Page Interactive Data File (embedded within the Inline XBRL
document) |
* Filed
herewith.
(1)
Previously filed as an exhibit to the Registrant’s Registration Statement on
Form S-1 (333-219319), filed on August 25, 2017 and incorporated by reference
herein.
(2)
Previously filed as an exhibit to the Registrant’s Registration Statement on
Form S-1 (333-219319), filed on July 17, 2017 and incorporated by reference
herein.
(3)
Previously filed as an exhibit to the Registrant’s Registration Statement on
Form 8-K (333-219319), filed on December 29, 2020 and incorporated by reference
herein.
Item 16. Form 10-K Summary
Not
applicable.
SIGNATURES
Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned in the
capacities thereunto duly authorized.
|
GraniteShares
LLC |
|
Sponsor
of the GraniteShares Gold Trust |
|
(Registrant)
|
|
|
Date:
August 12, 2022 |
/s/
William Rhind |
|
William
Rhind* |
|
CEO
and CFO |
|
|
Date:
August 12, 2022 |
/s/
Benoit Autier |
|
Benoit
Autier* |
|
Chief
Accounting Officer |
*The
Registrant is a trust and the persons are signing in their capacities as
officers of GraniteShares LLC, the Sponsor of the Registrant.
GRANITESHARES
GOLD TRUST
FINANCIAL
STATEMENTS AS OF JUNE 30, 2022
INDEX
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To
Management of the Trust’s Sponsor and Shareholders of
GraniteShares
Gold Trust
Opinion
on the Financial Statements
We have
audited the accompanying statement of assets and liabilities of GraniteShares
Gold Trust (the “Trust”), including the schedules of investments, as of June 30,
2022 and 2021, the related statements of operations, the statements of changes
in net assets, and the financial highlights for each of the years in the
three-year period ended June 30, 2022 and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of
the Trust as of June 30, 2022 and 2021, and the results of its operations, the
changes in its net assets, and the financial highlights for each of the years in
the three-year period ended June 30, 2022, in conformity with accounting
principles generally accepted in the United States of America.
We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (“PCAOB”), the Trust’s internal control over
financial reporting as of June 30, 2022, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
August 12, 2022, expressed an unqualified opinion.
Basis for
Opinion
These
financial statements are the responsibility of the management of the Trust’s
sponsor. Our responsibility is to express an opinion on the Trust’s financial
statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Trust in
accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB. We have
served as the auditor of one or more GraniteShares LLC investment companies
since 2019.
We conducted
our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical
Audit Matter
The critical
audit matter communicated below is a matter arising from the current period
audit of the financial statements that was communicated or required to be
communicated to management of the Trust’s Sponsor and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgements. The
communication of a critical audit matter does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Evaluation
of the evidence pertaining to the existence of the gold holdings
As disclosed
in the schedule of investments, as of June 30, 2022, the Trust’s market value of
gold holdings was $996,270,946 representing 100% of the Trust’s total assets.
All of the gold holdings, which were 548,305 ounces of gold as of June 30, 2022,
were held by a third-party custodian (the “Custodian”).
We
identified the evaluation of the evidence pertaining to the existence of the
gold holdings as a critical audit matter. Given the nature and volume of gold
holdings, subjective auditor judgement was required to evaluate the extent and
nature of evidence obtained to assess the quantity of gold held by the Custodian
as of June 30, 2022.
The
following are the primary procedures we performed to address the critical audit
matter. We obtained a schedule directly from the Custodian of the Trust’s gold
holdings held by the Custodian as of June 30, 2022. We compared the total ounces
on such schedule to the Trust’s record of gold holdings. We also obtained the
results of the physical count and brand purity of the Trust’s gold holdings
performed at the Custodian’s location by a third party directly from such third
party and reconciled the results to the Trust’s and Custodian’s record of
holdings.
TAIT, WELLER
& BAKER LLP
Philadelphia,
Pennsylvania
August
12, 2022
GRANITESHARES
GOLD TRUST
Statements of Assets and Liabilities
At June 30,
2022 and 2021
|
|
|
|
|
|
|
|
|
Amounts
in 000’s of US$, except share and per share data |
|
June 30, 2022 |
|
|
June 30, 2021 |
|
Assets |
|
|
|
|
|
|
|
|
Investment
in gold bullion, at fair value(1) |
|
$ |
996,271 |
|
|
$ |
1,009,604 |
|
Total Assets |
|
$ |
996,271 |
|
|
$ |
1,009,604 |
|
Liabilities |
|
|
|
|
|
|
|
|
Fees payable to
Sponsor |
|
$ |
144 |
|
|
$ |
154 |
|
Total Liabilities |
|
|
144 |
|
|
|
154 |
|
Net
Assets |
|
$ |
996,127 |
|
|
$ |
1,009,450 |
|
Shares
issued and outstanding, unlimited
authorized Shares with par value of $0.00 per
Share (2) |
|
|
55,300,000 |
|
|
|
57,650,000 |
|
Net asset value per Share |
|
$ |
18.01 |
|
|
$ |
17.51 |
|
See
Notes to the Financial Statements
GRANITESHARES
GOLD TRUST
Schedules of Investments
At June 30,
2022 and 2021
Amounts
in 000’s of US$, except for ounces and percentages
June 30,
2022 |
|
Ounces of gold |
|
|
Cost |
|
|
Value |
|
|
% of Net Assets |
|
Gold
bullion |
|
|
548,305.419 |
|
|
$ |
870,362 |
|
|
$ |
996,271 |
|
|
|
100.01 |
% |
Total investment |
|
|
|
|
|
$ |
870,362 |
|
|
$ |
996,271 |
|
|
|
100.01 |
% |
Liabilities in excess
of other assets |
|
|
|
|
|
|
|
|
|
$ |
(144 |
) |
|
|
(0.01 |
)% |
Net
assets |
|
|
|
|
|
|
|
|
|
$ |
996,127 |
|
|
|
100.00 |
% |
June 30,
2021 |
|
Ounces of gold |
|
|
Cost |
|
|
Value |
|
|
% of Net Assets |
|
Gold bullion |
|
|
572,613.665 |
|
|
$ |
878,799 |
|
|
$ |
1,009,604 |
|
|
|
100.02 |
% |
Total investment |
|
|
|
|
|
$ |
878,799 |
|
|
$ |
1,009,604 |
|
|
|
100.02 |
% |
Liabilities in excess of other assets |
|
|
|
|
|
|
|
|
|
$ |
(154 |
) |
|
|
(0.02 |
)% |
Net assets |
|
|
|
|
|
|
|
|
|
$ |
1,009,450 |
|
|
|
100.00 |
% |
See
Notes to the Financial Statements
GRANITESHARES
GOLD TRUST
Statements of Operations
For the
years ended June 30, 2022, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
in 000’s of US$, except per share data |
|
Year Ended June 30, 2022 |
|
|
Year Ended June 30, 2021 |
|
|
Year
Ended
June
30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,727 |
|
|
|
2,012 |
|
|
|
1,193 |
|
Net investment loss |
|
|
(1,727 |
) |
|
|
(2,012 |
) |
|
|
(1,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and
unrealized gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss)
from: |
|
|
|
|
|
|
|
|
|
|
|
|
Gold bullion sold to pay
expenses |
|
|
255 |
|
|
|
377 |
|
|
|
171 |
|
Gold
bullion distributed for the redemption of Shares |
|
|
25,988 |
|
|
|
60,315 |
|
|
|
6,731 |
|
Net
realized gain (loss) |
|
|
26,243 |
|
|
|
60,692 |
|
|
|
6,902 |
|
Net
change in unrealized appreciation (depreciation) |
|
|
(4,896 |
) |
|
|
(70,689 |
) |
|
|
152,903 |
|
Net
realized and unrealized gain (loss) |
|
|
21,347 |
|
|
|
(9,997 |
) |
|
|
159,805 |
|
Net increase
(decrease) in net assets resulting from operations |
|
$ |
19,620 |
|
|
$ |
(12,009 |
) |
|
$ |
158,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets per
share |
|
$ |
0.36 |
|
|
$ |
(0.19 |
) |
|
$ |
3.64 |
|
Weighted average number of shares (in 000’s) |
|
|
54,305 |
|
|
|
62,495 |
|
|
|
43,630 |
|
See
Notes to the Financial Statements
GRANITESHARES
GOLD TRUST
Statements of Changes in Net Assets
For the
years ended June 30, 2022, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
in 000’s of US$ |
|
Year Ended June 30, 2022 |
|
|
Year Ended June 30, 2021 |
|
|
Year
Ended
June
30, 2020 |
|
Net Assets – beginning of year |
|
$ |
1,009,450 |
|
|
$ |
1,041,316 |
|
|
$ |
545,511 |
|
Creations of 9,150,000, 16,600,000 and 23,500,000 shares respectively |
|
|
169,861 |
|
|
|
314,030 |
|
|
|
384,945 |
|
Redemptions of (11,500,000), (18,150,000) and (3,150,000) respectively |
|
|
(202,804 |
) |
|
|
(333,887 |
) |
|
|
(47,752 |
) |
Net investment (loss) |
|
|
(1,727 |
) |
|
|
(2,012 |
) |
|
|
(1,193 |
) |
Net realized gain from gold bullion sold to
pay expenses |
|
|
255 |
|
|
|
377 |
|
|
|
171 |
|
Net realized gain from gold bullion
distributed for redemptions |
|
|
25,988 |
|
|
|
60,315 |
|
|
|
6,731 |
|
Net change in
unrealized gain (loss) on investment in gold bullion |
|
|
(4,896 |
) |
|
|
(70,689 |
) |
|
|
152,903 |
|
Net Assets – end of
year |
|
$ |
996,127 |
|
|
$ |
1,009,450 |
|
|
$ |
1,041,316 |
|
See
Notes to the Financial Statements
GRANITESHARES
GOLD TRUST
Financial Highlights
For the
years ended June 30, 2022, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Performance
(for
a Share outstanding throughout each year) |
|
Year Ended June 30, 2022 |
|
|
Year Ended June 30, 2021 |
|
|
Year Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
Net asset value per Share,
beginning of year |
|
$ |
17.51 |
|
|
$ |
17.59 |
|
|
$ |
14.04 |
|
Net
investment income (loss)(1) |
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
(0.03 |
) |
Net
realized and unrealized gain (loss) on investment in gold bullion |
|
|
0.53 |
|
|
|
(0.05 |
) |
|
|
3.58 |
|
Net
change in net assets from operations |
|
|
0.50 |
|
|
|
(0.08 |
) |
|
|
3.55 |
|
Net asset value per
Share, end of year |
|
$ |
18.01 |
|
|
$ |
17.51 |
|
|
$ |
17.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return ratio, at net
asset value |
|
|
2.86 |
% |
|
|
(0.45 |
)% |
|
|
25.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets ($000’s) |
|
$ |
996,127 |
|
|
$ |
1,009,450 |
|
|
$ |
1,041,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio to average net
assets |
|
|
|
|
|
|
|
|
|
|
|
|
Net investment loss |
|
|
(0.17 |
)% |
|
|
(0.17 |
)% |
|
|
(0.17 |
)% |
Expenses |
|
|
0.17 |
% |
|
|
0.17 |
% |
|
|
0.17 |
% |
See
Notes to the Financial Statements
Notes to the Financial Statements for the year ended June 30,
2022
1. Organization
GraniteShares
Gold Trust (the “Trust”) is an investment trust formed on August 24, 2017 under
New York law pursuant to a trust indenture. The Sponsor of the Trust,
GraniteShares LLC (the “Sponsor”), is responsible for, among other things,
overseeing the performance of The Bank of New York Mellon (the “Trustee”) and
the Trust’s principal service providers, including the preparation of financial
statements. The Trustee is responsible for the day-to-day administration of the
Trust.
The
objective of the Trust is for the value of the Shares to reflect, at any given
time, the value of the assets owned by the Trust at that time less the Trust’s
accrued expenses and liabilities as of that time. The Shares are intended to
constitute a simple and cost-effective means of making an investment similar to
an investment in gold.
The fiscal
year end for the Trust is June 30.
Undefined
capitalized terms shall have the meaning as set forth in the Trust’s
registration statement.
2. Significant accounting policies
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.
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 Valuation of Gold
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.
Gold is held
by ICBC Standard Bank Plc (the “Custodian”), on behalf of the Trust, at the
Custodian’s London, United Kingdom vaulting premises. 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. If there is no
LBMA Gold Price PM on any day, the Trustee is authorized to use the most
recently announced LBMA Gold Price AM unless the Trustee, in consultation with
the Sponsor, determines that such price is inappropriate as a basis for
evaluation.
The LBMA PM
Gold Price is set using the afternoon session of the ICE Benchmark
Administration equilibrium auction, an electronic, tradable and auditable
over-the-counter auction market with the ability to participate in US Dollars,
Euros or British Pounds for LBMA authorized participating gold bullion banks or
market makers that establishes a reference gold price for that day’s
trading.
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.
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.
The Trustee
categorizes the Trust’s investment in gold as a level 1 asset within the ASC 820
hierarchy.
2.2 Expenses,
realized gains and losses
The Trust’s
only ordinary recurring fee is expected to be the fee paid to the Sponsor, which
will accrue daily at an annualized rate equal to % of the adjusted daily net asset value
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.
As of June
30, 2022, the fees payable to the Sponsor were $. As of June 30, 2021, the fees
payable to the Sponsor were $. , and
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 June 30, 2022, 2021 and 2020.
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. Gain or loss on sales of
gold bullion is calculated on a trade date basis using the average cost
method.
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,
ownership of the gold is transferred within two business days of the trade
date.
2.4. Creations
and Redemptions of Shares
The Trust
issues and redeems in one or more blocks of 50,000 Shares
(a block of 50,000 Shares
is called a “Basket”) only to Authorized Participants. The creation and
redemption of Baskets will only be 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 will be based on the
combined Fine Ounces represented by 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.
Orders to
create and redeem Baskets may be placed only by Authorized Participants. An
Authorized Participant must: (1) be a registered broker-dealer or other
securities market participant, such as a bank or other financial institution,
which, but for an exclusion from registration, would be required to register as
a broker-dealer to engage in securities transactions, (2) be a participant in
DTC, and (3) must have an agreement with the Custodian establishing an
unallocated account in London or have an existing unallocated account meeting
the standards described herein. To become an Authorized Participant, a person
must enter into an Authorized Participant Agreement with the Sponsor and the
Trustee. The Authorized Participant Agreement provides the procedures for the
creation and redemption of Baskets and for the delivery of the gold required for
such creations and redemptions. The Authorized Participant Agreement and the
related procedures attached thereto may be amended by the Trustee and the
Sponsor, without the consent of any investor or Authorized Participant. A
transaction fee of $500 will be assessed on all creation and
redemption transactions. Multiple Baskets may be created on the same day,
provided each Basket meets the requirements described below and that the
Custodian is able to allocate gold to the Trust Allocated Account such that the
Trust Unallocated Account holds no more than 430 Fine Ounces of gold at the close of a
business day.
Authorized
Participants who make deposits with the Trust in exchange for Baskets will
receive no fees, commissions or other form of compensation or inducement of any
kind from either the Sponsor or the Trust, and no such person has any obligation
or responsibility to the Sponsor or the Trust to effect any sale or resale of
shares.
2.5. Income
Taxes
The Trust is
classified as a “grantor trust” for United States federal income tax purposes.
As a result, the Trust itself will not be subject to United States federal
income tax. Instead, the Trust’s income and expenses will “flow through” to the
Shareholders, and the Trustee will report the Trust’s income, gains, losses and
deductions 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, 2022 and June 30,
2021.
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 June 30, 2022, the 2022, 2021, 2020 and 2019 tax years
remain open for examination. There were no examinations in progress at year
end.
3. Investment in gold
Changes in
ounces of gold and their respective values for the year ended June 30,
2022.
Schedule of Investment in
Gold
Amounts
in 000’s of US$, except for ounces data |
|
Ounces |
|
|
Fair Value |
|
Opening balance as of June 30,
2021 |
|
|
572,613.665 |
|
|
$ |
1,009,604 |
|
Gold bullion contributed |
|
|
90,785.069 |
|
|
|
169,861 |
|
Gold bullion distributed |
|
|
(115,093.315 |
) |
|
|
(178,298 |
) |
Change in
unrealized appreciation (depreciation) |
|
|
- |
|
|
|
(4,896 |
) |
Ending balance as
of June 30, 2022 |
|
|
548,305.419 |
|
|
$ |
996,271 |
|
Changes in
ounces of gold and their respective values for the year ended June 30,
2021.
Amounts
in 000’s of US$, except for ounces data |
|
Ounces |
|
|
Fair Value |
|
Opening balance as of June 30,
2020 |
|
|
589,025.927 |
|
|
$ |
1,041,457 |
|
Gold bullion contributed |
|
|
165,070.756 |
|
|
|
314,030 |
|
Gold bullion distributed |
|
|
(181,483.018 |
) |
|
|
(275,194 |
) |
Change in
unrealized appreciation (depreciation) |
|
|
- |
|
|
|
(70,689 |
) |
Ending balance as
of June 30, 2021 |
|
|
572,613.665 |
|
|
$ |
1,009,604 |
|
4. Related parties – Sponsor and
Trustee
A fee is
paid to the Sponsor as compensation for services performed under the Trust
Agreement. In exchange for the Sponsor’s fee, the Sponsor has agreed to assume
the following administrative and marketing expenses incurred by the Trust: the
Trustee’s fee and out-of-pocket expenses, the custodian’s fee and reimbursement
of the custodian expenses, NYSE Arca listing fees, SEC registration fees,
printing and mailing costs, audit fees and expenses, and up to $100,000 per
annum in legal fees and expenses. The Sponsor’s fee is payable at an annualized
rate of % of the Trust’s Net Asset Value,
accrued on a daily basis computed on the prior Business Day’s Net Asset Value
and paid monthly in arrears.
The Sponsor,
from time to time, may temporarily waive all or a portion of the Sponsor’s Fee
at its discretion for a stated period of time. Presently, the Sponsor does not
intend to waive any part of its fee.
Affiliates
of the Trustee may from time to time act as Authorized Participants or purchase
or sell gold or Shares for their own account, as agent for their customers and
for accounts over which they exercise investment discretion.
5. Concentration of risk
In
accordance with Statement of Position No. 94-6, Disclosure of Certain
Significant Risks and Uncertainties, the Trust’s sole business activity is the
investment in gold bullion. Several factors could affect the price of gold: (i)
global gold supply and demand, which is influenced by such factors as forward
selling by gold producers, purchases made by gold producers to unwind gold hedge
positions, central bank purchases and sales, and production and cost levels in
major gold-producing countries; (ii) investors’ expectations with respect to the
rate of inflation; (iii) currency exchange rates; (iv) interest rates; (v)
investment and trading activities of hedge funds and commodity funds; and (vi)
global or regional political, economic or financial events and situations. In
addition, there is no assurance that gold will maintain its long-term value in
terms of purchasing power in the future. In the event that the price of gold
declines, the Sponsor expects the value of an investment in the Shares to
decline proportionately. Each of these events could have a material effect on
the Trust’s financial position and results of operations.
6. Indemnification
Under the
Trust’s organizational documents, each of the Trustee (and its directors,
officers, employees, shareholders, agents and affiliates) and the Sponsor (and
its members, managers, directors, officers, employees, agents and affiliates) is
indemnified against any liability, loss or expense it incurs without (i) gross
negligence, bad faith, willful misconduct or willful misfeasance on its part in
connection with the performance of its obligations under the Trust Agreement or
any such other agreement or any actions taken in accordance with the provisions
of the Trust Agreement or any such other agreement and (ii) reckless disregard
on its part of its obligations and duties under the Trust Agreement or any such
other agreement. Such indemnity shall also include payment from the Trust of the
reasonable costs and expenses incurred by the indemnified party in investigating
or defending itself against any such loss, liability or expense or any claim
therefore. In addition, the Sponsor may, in its sole discretion, undertake any
action that it may deem necessary or desirable in respect of the Trust Agreement
and in such event, the reasonable legal expenses and costs and other
disbursements of any such actions shall be expenses and costs of the Trust and
the Sponsor shall be entitled to reimbursement by the Trust. The Trust’s maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred.
7. Subsequent events
Management
has evaluated the events and transactions that have occurred through the date
the financial statements were issued and noted no items requiring adjustment of
the financial statements or additional disclosures.