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ISHARES GOLD TRUST - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 8, 2014

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 fixed by the London Gold Market Fixing Ltd. in the afternoon (London time) of the day the valuation takes place (such price, the "London PM Fix"). If there is no announced London PM Fix on a business day, the Trustee is 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 takes place (such price, the "London AM Fix"). Having valued the gold held by the Trust, the Trustee then subtracts all accrued fees, expenses and other liabilities of the Trust from the value of the gold and other assets of 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.

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 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 the Trust's accounting policies.

Valuation of Gold Bullion



Beginning January 1, 2014, the gold bullion held by the Trust is valued at fair value. Prior to January 1, 2014, gold bullion held by the Trust was recorded at the lower of cost or market. In applying the lower of cost or market valuation, if the fair value of the gold bullion held was lower than its average cost during the interim periods, an adjustment ("market value reserve") to cost was recorded by the Trust to reflect fair value. If the fair value of the gold bullion held increased subsequent to the market value reserve being recorded, a "market value recovery" was recorded during an interim period in the same fiscal year that the market value reserve had been recorded by the Trust. The market value recovery recorded at an interim period could not exceed the previously recognized market value reserve. At the end of the Trust's fiscal year, management made a determination as to whether the reserve was recovered or whether the cost basis of gold bullion was written down. The market value reserve, market value recovery and inventory write down each were reported as a component of "Adjustment to gold bullion inventory."

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Table Of Contents



Fair value of the gold bullion is based on the London PM Fix. If there is no announced London PM Fix on a business day, the Trustee is authorized to use the most recently announced London AM Fix.

There are other indicators of the value of gold bullion that are available that could be different than that chosen by the Trust. The London PM Fix is used by the Trust because it is commonly used by the U.S. gold market as an indicator of the value of gold, and is permitted to be used under the Trust Agreement. The use of an indicator of the value of gold bullion other than the London PM Fix could result in materially different fair value pricing of the gold in the Trust. Please refer to Risk Factors under Part II, Item 1A of this report.

Results of Operations



The Quarter Ended June 30, 2014

The Trust's net asset value grew from $6,859,456,971 at March 31, 2014 to $6,964,507,211 at June 30, 2014, a 1.53% increase. The increase in the Trust's net asset value resulted primarily from an increase in the London fix price, which rose 1.80% from $1,291.75 at March 31, 2014 to $1,315.00 at June 30, 2014. The increase in the Trust's net asset value was partially offset by a decrease in outstanding Shares, which fell from 547,700,000 Shares at March 31, 2014 to 546,600,000 Shares at June 30, 2014, a consequence of 7,600,000 Shares (152 Baskets) being created and 8,700,000 Shares (174 Baskets) being redeemed during the quarter.

The 1.76% rise in the Trust's net asset value per Share from $12.52 at March 31, 2014 to $12.74 at June 30, 2014 is directly related to the 1.80% increase in the London fix price.

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 $4,231,120 for the quarter, or 0.06% of the Trust's average weighted assets of $6,790,182,396 during the quarter. The net asset value per Share of $12.85 on April 14, 2014 was the highest during the quarter, compared with a low during the quarter of $12.04 on June 3, 2014. The net asset value 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 net asset value per Share is obtained by dividing the net asset value of the Trust on a given day by the number of Shares outstanding on that day.

Net income for the quarter ended June 30, 2014 was $116,233,310, resulting from a net investment loss of $4,231,120, a net realized gain of $221,970 from investment in gold bullion sold to pay expenses, a net realized gain of $5,354,019 on gold bullion distributed for the redemption of Shares and a net change in unrealized appreciation/depreciation on investment in gold bullion of $114,888,441. Other than the Sponsor's fees of $4,231,120, the Trust had no expenses during the quarter.

The Six Months Ended June 30, 2014

The Trust's net asset value grew from $6,271,029,069 at December 31, 2013 to $6,964,507,211 at June 30, 2014, a 11.06% increase. The increase in the Trust's net asset value resulted primarily from an increase in the London fix price, which rose 9.45% from $1,201.50 at December 31, 2013 to $1,315.00 at June 30, 2014. The Trust's net asset value also benefited from an increase in outstanding Shares, which rose from 538,000,000 Shares at December 31, 2013 to 546,600,000 Shares at June 30, 2014, a consequence of 23,600,000 Shares (472 Baskets) being created and 15,000,000 Shares (300 Baskets) being redeemed during the period.

The 9.26% rise in the Trust's net asset value per Share from $11.66 at December 31, 2013 to $12.74 at June 30, 2014 is directly related to the 9.45% increase in the London fix price.

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 $8,414,996 for the period, or 0.12% of the Trust's average weighted assets of $6,791,937,227 during the period. The net asset value per Share of $13.43 on March 14, 2014 was the highest during the period, compared with a low during the period of $11.84 on January 8, 2014. The net asset value 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 net asset value per Share is obtained by dividing the net asset value of the Trust on a given day by the number of Shares outstanding on that day.

Net income for the six months ended June 30, 2014 was $579,555,003, resulting from a net investment loss of $8,414,996, a net realized gain of $455,988 from investment in gold bullion sold to pay expenses, a net realized gain of $9,181,874 on gold bullion distributed for the redemption of Shares and a net change in unrealized appreciation/depreciation on investment in gold bullion of $578,332,137. Other than the Sponsor's fees of $8,414,996, the Trust had no expenses during the period.


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Source: Edgar Glimpses


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