News Column

ETFS GOLD TRUST - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

February 28, 2014

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. Neither the Sponsor, nor any other person assumes responsibility for the accuracy or completeness of 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 ETFS 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 ETF Securities USA 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 that 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 Trust are Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., EWT, LLC, Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA, LLC, Scotia Capital (USA) Inc., UBS Securities LLC and Virtu Financial BD, LLC.

Shares of the Trust trade on the NYSE Arca under the symbol "SGOL".

Investing in the Shares does not insulate the investor from certain risks, including price volatility. The following table illustrates the movement in the price of the Shares and net asset value ("NAV") of the Shares against the corresponding gold price (per 1/10 of an oz. of gold) since inception:

NAV per Share vs. 1/10th Gold Fix from the Date of Inception to December 31, 2013

[[Image Removed: Picture 1]]

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.

26



--------------------------------------------------------------------------------

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 and is valued, for financial statement purposes, at the lower of cost or market. The cost of gold is determined according to the average cost method and the market value is based on the London PM Fix used to determine the NAV of the Trust. Realized gains and losses on sales of gold, or gold distributed for the redemption of Shares, are calculated on a trade date basis using average cost.

December 31, 2013 December 31, 2012 December 31, 2011 (Amounts in 000's of US$) Investment in gold - average cost $ 1,166,940$ 1,561,925$ 1,376,845 Realized loss on investment in gold (126,937) - - Investment in gold - lower of cost or market value 1,040,003 1,561,925 1,376,845 Unrealized gain on investment in gold - 368,762 301,078 Investment in gold - market value $ 1,040,003$ 1,930,687$ 1,677,923 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 or the Zurich Sub-Custodian for the purpose of examining the Trust's gold and certain related records maintained by the Custodian. Visits by auditors and inspectors to the Zurich Sub-Custodian's facilities will be arranged through the Custodian. Other than with respect to the Zurich Sub-Custodian, the Trustee has no right to visit the premises of any sub-custodian for the purposes of examining the Trust's gold or any records maintained by the sub-custodian, and no sub-custodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such sub-custodian.

The Sponsor has exercised its right to visit the Custodian, in order to examine the gold and the records maintained by the Custodian. The inspection held as of December 31, 2013 by Inspectorate International Limited, a leading commodity inspection and testing company, confirmed that the Custodian's records of gold held in the vault were accurate. The Sponsor has not exercised its right to visit the premises of the Zurich Sub-Custodian for the purpose of examining the Trust's gold and related records.

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 December 31, 2013 and 2012 the Trust did not have any cash balances.

27



--------------------------------------------------------------------------------

Review of Financial Results Financial Highlights December 31, 2013 December 31, 2012 December 31, 2011 (Amounts in 000's of US$) Total (loss) / gain on gold $ (125,392) $ 21,723 $ 16,729 Net (loss) / gain from operations $ (131,104) $ 14,523 $ 10,873 Net cash provided by operating activities $ - $ - $ -



The year ended December 31, 2013

The net asset value ("NAV") of the Trust is obtained by subtracting the Trust's expenses and liabilities on any day from the value of the gold owned by the Trust on that day; the NAV per Share is obtained by dividing the NAV of the Trust on a given day by the number of Shares outstanding on that day.

The Trust's NAV decreased from $1,930,056,244 at December 31, 2012 to $1,033,745,288 at December 31, 2013, a 46.44% decrease for the year. The decrease in the Trust's NAV resulted primarily from a decrease in the price per ounce of gold, which fell 27.79% from $1,664.00 at December 31, 2012 to $1,201.50 at December 31, 2013, and a decrease in outstanding Shares, which fell from 11,750,000 Shares at December 31, 2012 to 8,750,000 Shares at December 31, 2013, a result of 150,000 Shares (3 Baskets) being created and 3,150,000 Shares (63 Baskets) being redeemed during the year.

NAV per Share decreased 28.08% from $164.26 at December 31, 2012 to $118.14 at December 31, 2013. 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 Fee, which was

$5,712,292 for the year, or 0.39% of the Trust's assets on an annualized basis.

The NAV per Share of $167.19 at January 2, 2013 was the highest during the year, compared with a low of $117.44 at June 28, 2013.

Net loss from operations for the year ended December 31, 2013 was $131,104,116, resulting from a net gain of $464,292 on the transfer of gold to pay expenses and a net gain of $1,081,269 on gold distributed for the redemption of Shares, offset by a realized loss on gold of $126,936,978 and Sponsor's Fee of $5,712,292. Other than the Sponsor's Fee, the Trust had no expenses during the year ended December 31, 2013.

The year ended December 31, 2012

The Trust's NAV increased from $1,677,362,792 at December 31, 2011 to $1,930,056,244 at December 31, 2012, a 15.06% increase for the year. The increase in the Trust's NAV resulted primarily from an increase in the price per ounce of gold, which rose 5.68% from $1,574.50 at December 31, 2011 to $1,664.00 at December 31, 2012, and an increase in outstanding Shares, which rose from 10,750,000 Shares at December 31, 2011 to 11,750,000 Shares at December 31, 2012, a result of 1,600,000 Shares (32 Baskets) being created and 600,000 Shares (12 Baskets) being redeemed during the year.

NAV per Share increased 5.27% from $156.03 at December 31, 2011 to $164.26 at December 31, 2012. The Trust's NAV per Share rose slightly less than the price per ounce of gold on a percentage basis due to Sponsor's Fee, which were $7,200,166 for the year, or 0.39% of the Trust's assets on an annualized basis.

The NAV per Share of $177.04 at October 4, 2012 was the highest during the year, compared with a low of $152.37 at May 30, 2012.

Net gain from operations for the year ended December 31, 2012 was $14,522,816, resulting from a net gain of $1,482,607 on the transfer of gold to pay expenses and a net gain of $20,240,375 on gold distributed for the redemption of Shares, offset by Sponsor's Fee of $7,200,166. Other than the Sponsor's Fee, the Trust had no expenses during the year ended December 31, 2012.

28



--------------------------------------------------------------------------------

The year ended December 31, 2011

The Trust's NAV increased from $1,157,505,203 at December 31, 2010 to $1,677,362,792 at December 31, 2011, a 44.91% increase for the year. The increase in the Trust's NAV resulted primarily from an increase in the price per ounce of gold, which increased 11.65% from $1,410.25 at December 31, 2010 to $1,574.50 at December 31, 2011, and an increase in outstanding Shares, which rose from 8,250,000 Shares at December 31, 2010 to 10,750,000 Shares at December 31, 2011, a result of 2,950,000 Shares (59 Baskets) being created and 450,000 Shares (9 Baskets) being redeemed during the year.

NAV per Share increased 11.21% from $140.30 at December 31, 2010 to $156.03 at December 31, 2011. The Trust's NAV per Share rose slightly less than the price per ounce of gold on a percentage basis due to Sponsor's Fee, which were $5,855,861 for the year, or 0.39% of the Trust's assets on an annualized basis.

The NAV per Share of $188.03 at September 6, 2011 was the highest during the year, compared with a low of $131.19 at January 28, 2011.

Net gain from operations for the year ended December 31, 2011 was $10,873,288, resulting from a net gain of $1,217,680 on the transfer of gold to pay expenses and a net gain of $15,511,469 on gold distributed for the redemption of Shares, offset by Sponsor's Fee of $5,855,861. Other than the Sponsor's Fee, the Trust had no expenses during the year ended December 31, 2011.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools