Notes
to the Financial Statements (Unaudited)
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 December 31, 2022, the fees payable to the Sponsor were $. As of June 30, 2022, the fees payable to the Sponsor were $.
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 three and six months ended December 31, 2022 and 2021.
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 December 31, 2022 and June 30, 2022.
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 December 31, 2022, the 2022, 2021,
2020 and 2019 tax years remain open for examination.
2.6
Emerging Growth Company qualification
As
of June 30, 2022, the Trust no longer qualifies as an emerging growth company.
3.
Investment in gold
Changes
in ounces of gold and their respective values for the six months ended December 31, 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, 2022 | |
| 548,305.419 | | |
$ | 996,271 | |
| Gold bullion contributed | |
| 15,852.329 | | |
| 26,767 | |
| Gold bullion distributed | |
| (74,782.099 | ) | |
| (118,763 | ) |
| Change in unrealized appreciation (depreciation) | |
| - | | |
| (17,355 | ) |
| Ending balance as of December 31, 2022 | |
| 489,375.649 | | |
$ | 886,920 | |
Changes
in ounces of gold and their respective values for the fiscal year ended June 30, 2022.
| 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 | |
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.