VanEck Merk Gold Trust - Quarter Report: 2014 July (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

 

_____________________________________

 

Commission file number: 333-180868

MERK GOLD TRUST

 

(Exact name of Registrant as specified in its charter)

 

c/o Merk Investments LLC

690 San Antonio Road, Suite 201

Palo Alto, California 94303

(Address of Principal Executive Offices)

(714) 508-6000

(Registrant’s telephone number, including area code)

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 o   No  ý

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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. (Check one)

(Do not check if a smaller reporting company)

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o     No  ý

 

As of July 31, 2014, the issuer had 4,347,442 Merk Gold shares outstanding.

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MERK GOLD TRUST

TABLE OF CONTENTS

				Page
PART I - FINANCIAL INFORMATION				1
Item 1.		Financial Statements (Unaudited)		1
		Unaudited Statement of Assets and Liabilities at July 31, 2014		1
		Unaudited Statement of Operations for the Period May 6, 2014 to July 31, 2014		2
		Unaudited Statement of Changes in Net Assets for the Period May 6, 2014 to July 31, 2014		3
		Unaudited Financial Highlights for the Period May 6, 2014 to July31, 2014		4
		Unaudited Schedule of Investments at July 31, 2014		5
		Notes to the Unaudited Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		13
Item 4.		Controls and Procedures		13
PART II - OTHER INFORMATION				14
Item 1.		Legal Proceedings		14
Item 1A.		Risk Factors		14
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		14
Item 3.		Defaults Upon Senior Securities		14
Item 4.		Mine Safety Disclosures		14
Item 5.		Other Information		14
Item 6.		Exhibits		15
SIGNATURES				16

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MERK GOLD TRUST

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, includes statements which relate to future events or future performance.  In some cases, you can identify such forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology.  All statements (other than statements of historical fact) included in this Quarterly Report that address activities, events or developments that may occur in the future, including such matters as changes in commodity prices and market conditions (for gold and the shares), the operations of Merk Gold Trust, or Trust, the plans of Merk Investments LLC, the sponsor of the Trust, or Sponsor, and references to the Trust’s future success and other similar matters are forward-looking statements.  These statements are only predictions.  Actual events or results may differ materially.  These statements are based upon certain assumptions and analyses made by the Sponsor on the basis of its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances.  Whether or not actual results and developments will conform to the Sponsor’s expectations and predictions is subject to a number of risks and uncertainties, including the special considerations referenced in this Quarterly Report, general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies, and other world economic and political developments.  Consequently, all the forward-looking statements made in this Quarterly Report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, that they will result in the expected consequences to, or have the expected effects on, the Trust’s operations or the value of the shares.  Moreover, neither the Sponsor, nor any other person assumes responsibility for the accuracy or completeness of the forward-looking statements.  Neither the Trust nor the Sponsor undertakes an obligation to publicly update or conform to actual results any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

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PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This information should be read in conjunction with the unaudited financial statements and notes to the unaudited financial statements included in Item 1 of Part 1 of this Form 10-Q. The discussion and analysis that follows may contain forward-looking statements with respect to the Merk Gold Trust’s financial conditions, operations, future performance and business. These statements can be identified by the use of the words “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or similar words and phrases.  These statements are based upon certain assumptions and analyses Merk Investments LLC, the Sponsor, has made based on its perception of historical trends, current conditions and expected future developments. 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 reflect a change in management’s expectations or predictions.

Introduction

The Merk Gold Trust (the “Trust”) was formed pursuant to a depositary trust agreement (the “Trust Agreement”) on May 6, 2014 under New York State law. The Trust is not managed like a corporation or an active investment vehicle.  It does not have any officers, directors, or employees and is administered by the Trustee pursuant to the Trust Agreement.  The Trust is not registered as an investment company under the Investment Company Act of 1940, as amended, and is not required to register under such act.  It will not hold or trade in commodity futures contracts, nor is it a commodity pool, or subject to regulation as a commodity pool operator or a commodity trading adviser in connection with issuing shares.

The Trust’s primary objective is to provide investors with an opportunity to invest in gold through the shares and be able to take delivery of physical gold bullion and gold coins (“physical gold”) in exchange for those shares.  The Trust’s secondary objective is for the shares to reflect the performance of the price of gold less the expenses of the Trust’s operations.  Each share represents a fractional undivided beneficial interest in the Trust’s net assets.  The Trust’s assets consist principally of gold held on the Trust’s behalf in financial institutions for safekeeping.  Physical gold that the Trust will hold includes London Bars and, for the limited purposes described herein, other gold bars and coins, without numismatic value, having a minimum fineness (or purity) of 995 parts per 1,000 (99.5%) or, for American Gold Eagle gold coins, with a minimum fineness of 91.67%.

Shares are issued by the Trust only in blocks of 50,000 shares called “Baskets” in exchange for gold from certain registered broker-dealers or other securities market participants (“Authorized Participants”).  See “Creation and Redemption of Shares - Authorized Participants” in the notes to our financial statements for requirements to qualify as an Authorized Participant.  Baskets may be redeemed by the Trust in exchange for the amount of gold corresponding to their redemption value.  The Trust issues and redeems Baskets on an ongoing basis at net asset value to Authorized Participants who have entered into a contract with the Sponsor and the Trustee.

Shares of the Trust trade on the New York Stock Exchange (the “NYSE”) Arca under the symbol “OUNZ”.

Valuation of Gold and Computation of Net Asset Value

The Trustee determines the net asset value (the “NAV”) of the Trust on each day that NYSE Arca is open for regular trading, as promptly as practical after 4:00 PM New York time. The net asset value of the Trust is the aggregate value of the Trust’s assets less its estimated accrued but unpaid liabilities (which include accrued expenses).

In determining the Trust’s net asset value, the Trustee values the gold held by the Trust based on the afternoon session of the twice daily fix of the price of a Fine Ounce of gold which starts at 3:00 PM London, England time and is performed in London by the five members of the London gold fix (the “London PM Fix”). The Trustee also determines the net asset value per share.  If on a day when the Trust’s net asset value is being calculated the London PM Fix for that day is not available, the Trustee will value the gold held by the Trust based on that day’s morning session of the twice daily fix of the price of a Fine Ounce of gold, which starts at 10:30 AM London, England time and is performed in London by the five members of the London gold fix (the “London AM Fix”). If no fix is available for the day, the Trustee will value the Trust’s gold based on the most recently announced London PM Fix or London AM Fix.

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If the Sponsor determines that such price is inappropriate to use, it shall identify an alternate basis for evaluation to be employed by the Trustee. The Sponsor may instruct the Trustee to use a different publicly available price which the Sponsor determines to fairly represent the commercial value of the Trust’s gold.

Results from Operations

The Quarter Ended July 31, 2014

The Trust is a trust formed on May 6, 2014 under New York law pursuant to the Trust Agreement.  After consideration of Financial Accounting Standards Topic 946, the Sponsor has concluded that for financial statement reporting purposes the Trust meets the fundamental characteristics of an investment company.  In addition, while the Trust does not currently possess all of the typical characteristics of an investment company, the Sponsor believes the Trust's activities are consistent with those of an investment company and will therefore apply the guidance in Financial Accounting Standards Topic 946, including disclosure of the financial support contractually required to be provided by an investment company to any of its investees.  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 Trust’s NAV ended the quarter at 55,829,974, mostly as a result of inflows following the Trust’s launch in May.  Outstanding shares were 4,347,492 following the cumulative net creation of 87 Baskets throughout the period. Additionally, 1,489 shares were created for Sponsor’s fees, and 5,406 shares were redeemed directly by investors.

NAV per share decreased (1.68)% from inception on May 6, 2014 to quarter end on July 31, 2014, starting at $13.06 per share and ending the period at $12.84 per share.  The Trust’s NAV per share fell slightly more than the price per ounce of gold on a percentage basis due to the Sponsor’s fees, which were 1,489 shares in total.

The NAV per share of $13.40 on July 10, 2014 was the highest during the quarter, compared with a low of $12.43 on June 3, 2014.

The change in net assets from operations for the quarter ended July 31, 2014 was $(223,357) resulting from the sponsor fee of $(37,406) a net realized gain of $636 on gold bullion distributed for the redemption of shares and a net change in unrealized appreciation/depreciation on investments in gold bullion of $(186,587).  Other than the Sponsor’s fee, the Trust had no expenses during the quarter ended July 31, 2014.

Liquidity & Capital Resources

The Trust is not aware of any trends, demands, commitments, events or uncertainties that are reasonably likely to result in material changes to its liquidity needs.  In exchange for the Sponsor’s 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 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 in shares in lieu of cash.  At July 31, 2014, the Trust did not have any cash balances.

Off-Balance Sheet Arrangements

The Trust has no off-balance sheet arrangements.

Critical Accounting Policies

The unaudited financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited financial statements relies on estimates and assumptions that impact the Trust’s financial position and results of operations.  These estimates and

 

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assumptions affect the Trust’s application of accounting policies.  In addition, please refer to Note 2 to the unaudited financial statements for further discussion of accounting policies.

Effective May 6, 2014, the Trust has adopted the provisions of Topic 946, Investment Companies, and follows specialized accounting.

Investment by Certain Retirement Plans

Section 408(m) of the Internal Revenue Code, as amended (the “Code”), provides that the purchase of a “collectible” as an investment for an individual retirement account (an “IRA”) or for an individually directed account maintained under a plan that is tax-qualified under Section 401(a) of the Code (a “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 Trust has received a private letter ruling from the Internal Revenue Service which provides that the acquisition of shares by the trustee or custodian of an IRA or a Tax-Qualified Account will not constitute the acquisition of a collectible, and thus, a Tax-Qualified Account owning shares will not be treated as having made a distribution to the IRA owner or plan participant under Code section 408(m) solely by virtue of owning such shares.  However, in the event any redemption of shares results in the distribution of gold coins or gold bullion to an IRA or a Tax-Qualified Account, such distribution would constitute the acquisition of a collectible and therefore a distribution from the account, except to the extent the those gold coins or gold bullion satisfies section 408(m)(3) of the Code.

Investors who are considering exchanging their shares for gold coins or gold bullion should consult with their tax advisors regarding the tax implications thereof before doing so.

ERISA and Related Considerations

 

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or section 4975 of the Code impose certain requirements on employee benefit plans and certain other plans and arrangements, including IRAs and individual retirement annuities, Keogh plans, and certain collective investment funds or insurance company general or separate accounts in which such plans or arrangements are invested, that are subject to ERISA and/or the Code (collectively, “Plans”), and on persons who are fiduciaries with respect to the investment of assets treated as “plan assets” of a Plan. Investments by Plans are subject to the fiduciary requirements and the applicability of prohibited transaction restrictions under ERISA.

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 state or other federal law.  Fiduciaries of any such plans are advised to consult with their counsel prior to an investment in shares.

 

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, the “Risk Factors” discussed below and whether such investment is consistent with its fiduciary responsibilities, including, but not limited to: (a) whether the fiduciary has the authority to make the investment under the appropriate governing plan instrument; (b) whether the investment would constitute a direct or indirect non-exempt prohibited transaction with a party in interest; (c) the Plan’s funding objectives; and (d) whether under the general fiduciary standards of investment prudence and diversification such investment is appropriate for the Plan, taking into account the overall investment policy of the Plan, the composition of the Plan’s investment portfolio and the Plan’s need for sufficient liquidity to pay benefits when due.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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 does not invest in any derivative financial instruments or long-term debt instruments.

Item 4.  Controls and Procedures

The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) 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 Principal Executive Officer and Principal Financial and Principal Accounting Officer of the Sponsor, and to the auditor, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of the Principal Executive Officer and the Principal Financial and Principal Accounting Officer of the Sponsor, the Sponsor conducted an evaluation of the Trust’s disclosure controls and procedures, as defined under Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, the Principal Executive Officer and the Principal Financial and Principal Accounting Officer of the Sponsor concluded that, as of July 31, 2014, 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 fiscal quarter ended July 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Trust’s or Sponsor’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 1A. Risk Factors

You should carefully consider the factors discussed under the caption “Risk Factors” beginning on page 12 of Amendment No. 6 to our Registration Statement on Form S-1 (the “Registration Statement”), filed with the Securities and Exchange Commission on May 13, 2014, which could materially affect our business, financial condition or future results.  There have been no material changes in our risk factors from those disclosed in our Registration Statement.

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

Recent Sales of Unregistered Securities

None.

Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

None.

Item 5.  Other Information

None.

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Item 6.  Exhibits

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*Previously Filed.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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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 its capacities* thereunto duly authorized.

 

* The Registrant is a trust and the persons are signing in their capacities as officers of Merk Investments LLC, the Sponsor of the Registrant.

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