ISHARES GOLD TRUST - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission file number: 001-32418

 iShares® Gold Trust

(Exact name of registrant as specified in its charter)

c/o iShares Delaware Trust Sponsor LLC

400 Howard Street

San Francisco, California 94105

Attn: Product Management Team

iShares Product Research & Development

(Address of principal executive offices)

(415) 670-2000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Table of Contents

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

iShares Gold Trust

Statements of Assets and Liabilities (Unaudited) 

At March 31, 2016 and December 31, 2015

(a)     Cost of investment in gold bullion: $7,174,407 and $5,910,176, respectively.

(b)     No par value, unlimited amount authorized.

See notes to financial statements. 

iShares Gold Trust

Statements of Operations (Unaudited) 

For the three months ended March 31, 2016 and 2015

See notes to financial statements.

iShares Gold Trust

Statements of Changes in Net Assets (Unaudited) 

For the three months ended March 31, 2016 and the year ended December 31, 2015

See notes to financial statements.

iShares Gold Trust

Statements of Cash Flows (Unaudited) 

For the three months ended March 31, 2016 and 2015

See notes to financial statements.

See notes to financial statements. 

iShares Gold Trust

Notes to Financial Statements (Unaudited)

March 31, 2016

Item 2. 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 financial statements included in Item 1 of Part I of this Form 10-Q. 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,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. Except as required by applicable disclosure laws, neither the Sponsor, nor any other person assumes responsibility for the accuracy or completeness of any forward-looking statements. Neither the Trust nor the Sponsor is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsor’s expectations or predictions.

Introduction

The iShares Gold Trust (the “Trust”) is a grantor 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 Third Amended and Restated Depositary Trust Agreement (the “Trust Agreement”) between the Trustee and iShares Delaware Trust Sponsor LLC, the sponsor of the Trust (the “Sponsor”). The Trust issues units of beneficial interest (or “Shares”) representing fractional undivided beneficial interests in its net assets. The assets of the Trust consist primarily of gold bullion held by a custodian as an agent of the Trust responsible only to the Trustee.

The Trust is a passive investment vehicle and seeks to reflect generally the performance of the price of gold. The Trust seeks to reflect such performance before payment of the Trust’s expenses and liabilities. 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 Shares or integral multiples thereof (each, a “Basket”), and only in transactions with registered broker-dealers that have previously entered into an agreement with the Trust governing the terms and conditions of such issuance (such broker-dealers, the “Authorized Participants”). A list of current Authorized Participants is available from the Sponsor or the Trustee.

Shares of the Trust trade on NYSE Arca, Inc. under the symbol “IAU.”

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 net asset value per Share. The Trustee values the gold held by the Trust using the price determined in an auction hosted by ICE Benchmark Administration (the “IBA”) in the afternoon (London time) of the day the valuation takes place (such price, the “LBMA Gold Price PM”). If there is no announced LBMA Gold Price PM on a business day, the Trustee is authorized to use the most recently announced price of gold determined in an auction hosted by IBA in the morning (London time) of the day the valuation takes place (such price, the “LBMA Gold Price AM”). Having valued the gold held by the Trust, the Trustee then subtracts all accrued fees, expenses and other liabilities of the Trust from the fair value of the gold and other assets held by the Trust. The result is the net asset value of the Trust. The Trustee computes the net asset value per Share by dividing the net asset value of the Trust by the number of Shares outstanding on the date the computation is made. Prior to March 20, 2015, the Trustee valued the gold held by the Trust using the announced price of gold fixed in the afternoon of each working day (London time) by the London Gold Market Fixing Ltd. (such price, the “London PM Fix”). If there was no announced London PM Fix, the Trustee was authorized to use the most recently announced price fixed by the London Gold Market Fixing Ltd. in the morning (London time) of the day the valuation took place (such price, the “London AM Fix”).

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 has agreed to assume most of the expenses incurred by the Trust. As a result, the only ordinary 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 sales of gold.

Critical Accounting Policies

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, the Trust describes the valuation of gold bullion, a critical accounting policy that the Trust believes is important to understanding its results of operations and financial position. In addition, please refer to Note 2 to the financial statements for further discussion of the Trust’s accounting policies.  

Valuation of Gold Bullion

There are other indicators of the value of gold bullion that are available that could be different than that chosen by the Trust. The LBMA Gold Price AM and LBMA Gold Price PM are used by the Trust because they are commonly used by the U.S. gold market as indicators of the value of gold, and are permitted to be used under the Trust Agreement. The use of indicators of the value of gold bullion other than the LBMA Gold Price AM and LBMA Gold Price PM could result in materially different fair value pricing of the gold held by the Trust.

Results of Operations

The Quarter Ended March 31, 2016

The Trust’s net asset value grew from $5,209,802,846 at December 31, 2015 to $7,408,643,377 at March 31, 2016, a 42.21% increase. The increase in the Trust’s net asset value resulted primarily from an increase in the number of outstanding Shares, which rose from 508,100,000 Shares at December 31, 2015 to 620,850,000 Shares at March 31, 2016, a consequence of 140,950,000 Shares (2,819 Baskets) being created and 28,200,000 Shares (564 Baskets) being redeemed during the quarter. The Trust’s net asset value also benefited from an increase in the price of gold, which rose 16.45% from $1,062.25 (LBMA Gold Price AM) at December 31, 2015 to $1,237.00 (LBMA Gold Price PM) at March 31, 2016.

The 16.39% rise in the Trust’s net asset value per Share from $10.25 at December 31, 2015 to $11.93 at March 31, 2016 is directly related to the 16.45% increase in the price of gold.

The Trust’s net asset value per Share increased slightly less than the price of gold on a percentage basis due to the Sponsor’s fees, which were $4,182,506 for the quarter, or 0.06% of the Trust’s average weighted assets of $6,753,923,114 during the quarter. The net asset value per Share of $12.33 on March 4, 2016 was the highest during the quarter, compared with a low during the quarter of $10.40 on January 5, 2016.

Net increase in net assets resulting from operations for the quarter ended March 31, 2016 was $937,920,385, resulting primarily from an unrealized gain on investment in gold bullion of $935,095,915 and a net realized gain of $7,164,838 on gold distributed for the redemption of Shares. These were offset by a net investment loss of $4,182,506 and a net realized loss of $157,862 from gold bullion sold to pay expenses during the period. Other than the Sponsor’s fees of $4,182,506, the Trust had no expenses during the quarter.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

The duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, with the participation of the Trustee, have evaluated the effectiveness of the Trust’s disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to the duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, as appropriate to allow timely decisions regarding required disclosure.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The Risk Factor disclosure contained in the registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016, is hereby amended by adding the following Risk Factor which was included in the prospectus filed with the SEC on April 15, 2016:

The Trust is subject to compliance with securities laws, which expose it to potential liabilities, including potential rescission rights.

On March 20, 2015, the Trust filed an automatic shelf registration statement registering 120,000,000 Shares (the "2015 Registration Statement"). On March 7, 2016, the Trust filed an automatic shelf registration statement registering 300,000,000 Shares (the “March 2016 Registration Statement”) which disclosed that between February 19, 2016 and March 3, 2016, the Trust issued and sold a total of 24,900,000 Shares in excess of the total Shares registered on its 2015 Registration Statement. However, the total number of unregistered excess Shares (the "Excess Shares") was 20,100,000 Shares, or less than the previously reported 24,900,000 Shares. The failure to file the March 2016 Registration Statement before the Trust sold more than the Shares registered on the 2015 Registration Statement was inadvertent. On March 3, 2016, the Trust became aware of the error and immediately suspended the issuance of additional Shares pending the filing of the March 2016 Registration Statement. The Excess Shares were not registered at the time of their initial sale, and may not qualify for an exemption from registration, under the Securities Act of 1933, as amended (the “Securities Act”). Authorized Participants and other investors who purchased Excess Shares could have rescission rights. If rescission rights are exercised by these investors, the Trust may be required to reacquire the Excess Shares at a price equal to the price originally paid for such Excess Shares, plus interest owed to the investor on such Excess Shares. Any such investors who no longer own the Excess Shares they acquired may have the right to collect damages from the Trust in lieu of the rescission rights described above. If investors were successful in seeking rescission and/or damages, the Trust would face financial demands that could adversely affect its reputation, business and operations. Additionally, the Trust may become subject to penalties imposed by the SEC and state securities agencies. If investors seek rescission and/or damages or the Trust elects to conduct a rescission offer, the Trust may or may not have the resources and will need to sell gold potentially at unfavorable prices to fund the repurchase of the Excess Shares.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a) On March 20, 2015, the Trust filed the 2015 Registration Statement registering 120,000,000 Shares. The March 2016 Registration Statement disclosed that between February 19, 2016 and March 3, 2016, the Trust issued and sold a total of 24,900,000 Shares in excess of the total Shares registered on the 2015 Registration Statement. However, the total number of unregistered excess Shares (the "Excess Shares") was 20,100,000 Shares or less than the previously reported 24,900,000 Shares. In particular, the number of unregistered Excess Shares issued in the first creation order on February 19, 2016 was 900,000 Shares, or a portion of the full creation order of 5,700,000 Shares that was previously reported. The failure to file the March 2016 Registration Statement before the Trust sold more than the Shares registered on the 2015 Registration Statement was inadvertent. On March 3, 2016, the Trust became aware of the error and immediately suspended the issuance of additional Shares pending the filing of the March 2016 Registration Statement. The Excess Shares were not registered at the time of their initial sale, and may not qualify for an exemption from registration, under the Securities Act. Authorized Participants and other investors who purchased Excess Shares could have rescission rights. Information about the creation orders for the Excess Shares is summarized below:

b)  Not applicable.

c)  28,200,000 Shares (564 Baskets) were redeemed during the quarter ended March 31, 2016.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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* indicated thereunto duly authorized.

iShares Delaware Trust Sponsor LLC,

Sponsor of the iShares Gold Trust (registrant)

Date: May 6, 2016

Date: May 6, 2016

*     The registrant is a trust and the persons are signing in their respective capacities as officers or directors of iShares Delaware Trust Sponsor LLC, the Sponsor of the registrant.

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