Item 1. Financial Statements (Unaudited)
VanEck Merk Gold Trust
Statements of Assets and Liabilities
|
|
October 31,
2019
|
|
|
January 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Investments in gold bullion (cost $144,870,251 and $145,342,210, respectively)
|
|
$
|
174,523,033
|
|
|
$
|
154,177,919
|
|
Total assets
|
|
|
174,523,033
|
|
|
|
154,177,919
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Sponsor’s fee payable
|
|
|
10
|
|
|
|
2
|
|
Total liabilities
|
|
|
10
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
174,523,023
|
|
|
$
|
154,177,917
|
|
|
|
|
|
|
|
|
|
|
Net assets consists of:
|
|
|
|
|
|
|
|
|
Paid-in-capital
|
|
$
|
150,396,328
|
|
|
$
|
150,490,404
|
|
Accumulated earnings
|
|
|
24,126,695
|
|
|
|
3,687,513
|
|
|
|
$
|
174,523,023
|
|
|
$
|
154,177,917
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding (no par value)
|
|
|
11,805,476
|
|
|
|
11,873,295
|
|
Net asset value per share
|
|
$
|
14.78
|
|
|
$
|
12.99
|
|
See notes to unaudited financial statements.
VanEck Merk Gold Trust
Statements of Operations
|
|
For the Three Months Ended October 31,
2019
|
|
|
For the Three Months Ended October 31,
2018
|
|
|
For the Nine Months Ended October 31,
2019
|
|
|
For the Nine Months Ended October 31,
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsor’s fees
|
|
$
|
173,817
|
|
|
$
|
136,358
|
|
|
$
|
474,492
|
|
|
$
|
421,618
|
|
Total expenses
|
|
|
173,817
|
|
|
|
136,358
|
|
|
|
474,492
|
|
|
|
421,618
|
|
Net investment loss
|
|
|
(173,817
|
)
|
|
|
(136,358
|
)
|
|
|
(474,492
|
)
|
|
|
(421,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) from gold bullion distributed for redemptions
|
|
|
—
|
|
|
|
(148,638
|
)
|
|
|
96,601
|
|
|
|
(148,638
|
)
|
Net change in unrealized appreciation (depreciation) on investment in gold bullion
|
|
|
9,375,531
|
|
|
|
(574,763
|
)
|
|
|
20,817,073
|
|
|
|
(14,447,003
|
)
|
Net realized and unrealized gain (loss) from operations
|
|
|
9,375,531
|
|
|
|
(723,401
|
)
|
|
|
20,913,674
|
|
|
|
(14,595,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
9,201,714
|
|
|
$
|
(859,759
|
)
|
|
$
|
20,439,182
|
|
|
$
|
(15,017,259
|
)
|
See notes to unaudited financial statements.
VanEck Merk Gold Trust
Statements of Changes in Net Assets
|
|
For the
Three Months Ended October 31,
2019
|
|
|
For the
Three Months Ended October 31,
2018
|
|
|
For the
Nine Months Ended October 31,
2019
|
|
|
For
the
Nine Months Ended October 31,
2018
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
Net assets, beginning of period
|
|
$
|
160,696,297
|
|
|
$
|
138,667,415
|
|
|
$
|
154,177,917
|
|
|
$
|
142,168,245
|
Creations
|
|
|
4,625,012
|
|
|
|
136,365
|
|
|
|
4,925,689
|
|
|
|
10,793,035
|
Redemptions
|
|
|
—
|
|
|
|
(4,136,768)
|
|
|
|
(5,019,765)
|
|
|
|
(4,136,768)
|
Net investment loss
|
|
|
(173,817)
|
|
|
|
(136,358)
|
|
|
|
(474,492)
|
|
|
|
(421,618)
|
Net realized gain (loss) from gold bullion distributed for redemptions
|
|
|
—
|
|
|
|
(148,638)
|
|
|
|
96,601
|
|
|
|
(148,638)
|
Net change in unrealized appreciation (depreciation) on investment in gold bullion
|
|
|
9,375,531
|
|
|
|
(574,763)
|
|
|
|
20,817,073
|
|
|
|
(14,447,003)
|
Net assets, end of period
|
|
$
|
174,523,023
|
|
|
$
|
133,807,253
|
|
|
$
|
174,523,023
|
|
|
$
|
133,807,253
|
See notes to unaudited financial statements.
VanEck Merk Gold Trust
Financial Highlights
Per Share Performance (for a share outstanding
throughout each period)
|
|
For the
Three Months Ended
October 31,
2019
|
|
|
For the
Three Months Ended
October 31,
2018
|
|
|
For
the
Nine Months Ended
October 31,
2019
|
|
|
For
the
Nine Months Ended
October 31,
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share, beginning of period
|
|
$
|
13.98
|
|
|
$
|
12.01
|
|
|
$
|
12.99
|
|
|
$
|
13.25
|
|
Net investment loss(a)
|
|
|
(0.02)
|
|
|
|
(0.01
|
)
|
|
|
(0.04)
|
|
|
|
(0.03
|
)
|
Net realized and unrealized gain (loss) on investment in gold bullion
|
|
|
0.82
|
|
|
|
(0.07
|
)
|
|
|
1.83
|
|
|
|
(1.29
|
)
|
Net change in net assets from operations
|
|
|
0.80
|
|
|
|
(0.08
|
)
|
|
|
1.79
|
|
|
|
(1.32
|
)
|
Net asset value per share, end of period
|
|
$
|
14.78
|
|
|
$
|
11.93
|
|
|
$
|
14.78
|
|
|
$
|
11.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return, at net asset value(b)
|
|
|
5.72
|
%
|
|
|
(0.67
|
)%
|
|
|
13.78
|
%
|
|
|
(9.96
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio to average net assets(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
|
(0.40)
|
%
|
|
|
(0.40
|
)%
|
|
|
(0.40)
|
%
|
|
|
(0.40
|
)%
|
Net expenses
|
|
|
0.40
|
%
|
|
|
0.40
|
%
|
|
|
0.40
|
%
|
|
|
0.40
|
%
|
(a)
|
Calculated using average shares outstanding
|
(b)
|
Not annualized
|
(c)
|
Annualized
|
See notes to unaudited financial statements.
VanEck Merk Gold Trust
Schedules of Investment
October 31, 2019 (unaudited)
|
|
Fine
Ounces
|
|
|
Cost
|
|
|
Value
|
|
|
% of Net Assets
|
|
Gold bullion
|
|
|
115,506
|
|
|
$
|
144,870,251
|
|
|
$
|
174,523,033
|
|
|
|
100.00
|
%
|
Total investments
|
|
|
|
|
|
$
|
144,870,251
|
|
|
$
|
174,523,033
|
|
|
|
100.00
|
%
|
Liabilities in excess of other assets
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
0.00
|
%(a)
|
Net assets
|
|
|
|
|
|
|
|
|
|
$
|
174,523,023
|
|
|
|
100.00
|
%
|
January 31, 2019
|
|
Fine
Ounces
|
|
|
Cost
|
|
|
Value
|
|
|
% of Net Assets
|
|
Gold bullion
|
|
|
116,515
|
|
|
$
|
145,342,210
|
|
|
$
|
154,177,919
|
|
|
|
100.00
|
%
|
Total investments
|
|
|
|
|
|
$
|
145,342,210
|
|
|
$
|
154,177,919
|
|
|
|
100.00
|
%
|
Liabilities in excess of other assets
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
0.00
|
%(a)
|
Net assets
|
|
|
|
|
|
|
|
|
|
$
|
154,177,917
|
|
|
|
100.00
|
%
|
(a)
|
Amount is less than 0.005%
|
See notes to unaudited financial statements.
VanEck Merk Gold Trust
Notes to Unaudited Financial Statements
1. ORGANIZATION
The VanEck Merk Gold Trust (the “Trust”;
known as the Merk Gold Trust prior to October 26, 2015 and then as the Van Eck Merk Gold Trust prior to April 28, 2016) is an investment
trust formed on May 6, 2014 under New York law pursuant to a depositary trust agreement. After consideration of Financial Accounting
Standards Topic 946, Merk Investments LLC (the “Sponsor”) has concluded 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, it believes its 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.
Virtu Financial, also known as the Lead
Market Maker, was the Initial Purchaser and contributed 1,000 Ounces of Gold in exchange for 100,000 shares on May 6, 2014. At
contribution, the value of the gold deposited with the Trust was based on the price of an Ounce of Gold of $1,306.25. The Initial
Purchaser is not affiliated with the Sponsor or the Trustee.
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 their 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. The Trust is not actively managed.
The fiscal year end of the Trust is January
31st.
2. SIGNIFICANT ACCOUNTING POLICIES
In preparing financial statements in conformity
with accounting principles generally accepted in the United States of America (“GAAP”), management makes estimates
and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amount of revenue and expenses reported during the period. Actual
results could differ from these estimates.
The accompanying audited and unaudited
financial statements were prepared in accordance with GAAP and with the instructions for the Form 10-Q and the rules and regulations
of the United States Securities and Exchange Commission. In the opinion of the Trust’s management, all adjustments (which
consists of normal recurring adjustments) necessary to present fairly the financial position and the results of operations, as
presented, have been made.
The following is a summary of significant
accounting policies followed by the Trust.
2.1. Valuation of Gold
Financial Accounting Standards Board Accounting
Standards Codification 820, “Fair Value Measurements and Disclosures” (“ASC 820”), provides a single definition
of fair value, a hierarchy for measuring fair value and expanded disclosures about fair value adjustments.
Various inputs are used in determining
the fair value of the Trust’s assets or liabilities. These inputs are categorized into three broad levels. Level 1 includes
unadjusted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market based
inputs (including prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable
inputs, which may include management’s own assumptions in determining the fair value of investments. The Trust does not hold
any derivative instruments, and its assets only consist of allocated gold bullion and gold receivable; representing gold covered
by contractually binding orders for the creation of shares where the gold has not yet been transferred to the Trust’s account
and, from time to time, cash, which is used to pay expenses.
VanEck Merk Gold Trust
Notes to Unaudited Financial Statements
(continued)
The following table summarizes the inputs
used as of October 31, 2019 in determining the Trust’s investments at fair value for purposes of ASC 820:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Investment in gold
|
|
$
|
174,523,033
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
174,523,033
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table summarizes the inputs
used as of January 31, 2019 in determining the Trust’s investments at fair value for purposes of ASC 820:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Investment in gold
|
|
$
|
154,177,919
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
154,177,919
|
|
|
$
|
—
|
|
|
$
|
—
|
|
London Gold Delivery Bars are held
by JPMorgan Chase Bank, N.A. (the “Custodian”), on behalf of the Trust, at the London, United Kingdom vaulting premises.
All gold is valued based on its Fine Ounce content, calculated by multiplying the weight of gold by its purity; the same methodology
is applied independent of the type of gold held by the Trust; similarly, the value of up to 430 Fine Ounces of unallocated gold
the Trust may hold is calculated by multiplying the number of Fine Ounces with the price of gold determined by the Trustee as follows.
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 NAV of the Trust is the aggregate value of the Trust’s
assets less its estimated accrued but unpaid liabilities (which include accrued expenses). The Trustee computes the NAV per Share
by dividing the net assets of the Trust by the number of the shares outstanding on the date the computation is made.
In determining the Trust’s NAV, 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 ICE Benchmark Administration as an independent
third-party administrator (the “LBMA PM Gold Price”). The Trustee also determines the NAV per Share. If on a day when
the Trust’s NAV is being calculated the LBMA PM Gold Price 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 ICE Benchmark Administration as an independent third-party
administrator (the “LBMA AM Gold Price”). If no fix is available for the day, the Trustee will value the Trust’s
gold based on the most recently announced LBMA AM Gold Price or LBMA PM Gold Price. Prior to March 20, 2015, the Trustee utilized
the daily fix of the price of a Fine Ounce of gold as performed by the five members of the London gold fix, which has now been
replaced by the ICE Benchmark Administration as an independent third-party administrator.
2.2. Expenses
The Trustee issues shares to pay the Sponsor’s
fee; the Sponsor pays the Trust’s ordinary expenses. The NAV of the Trust is used to compute the Sponsor’s fee, and
the Trustee subtracts from the NAV of the Trust the amount of accrued Sponsor’s fee. To the extent the Trust issues additional
shares to pay the Sponsor’s fee or sells gold to cover expenses or liabilities, the amount of gold represented by each share
will decrease. New deposits of gold, received in exchange for new shares issued by the Trust, would not reverse this trend.
VanEck Merk Gold Trust
Notes to Unaudited Financial Statements
(continued)
2.3. Creations and Redemptions of Shares
Shares are issued and redeemed by the Trust
in blocks of 50,000 shares called “Baskets” in exchange for gold from certain registered broker-dealers or other securities
market participants (“Authorized Participants”). Investors that are not Authorized Participants may also take delivery
of physical gold in exchange for their shares (“Delivery Applicants”).
Authorized Participants
The Trust issues and redeems Baskets 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.
Delivery Applicants
In exchange for its shares and payment
of a processing fee, a Delivery Applicant will be entitled to one or more bars or coins of physical gold having approximately the
total Fine Ounces represented by the shares on the day on which the Delivery Applicant’s broker-dealer submits his or her
shares to the Trust in exchange for physical gold. As it is unlikely that the total Fine Ounces of physical gold will exactly correspond
to the Fine Ounces represented by a specific number of shares, a Delivery Applicant will likely receive some cash representing
the net sale proceeds of any excess Fine Ounces (the “Cash Proceeds”). To minimize the Cash Proceeds of any exchange,
the delivery application requires that the number of shares submitted closely correspond in Fine Ounces to the Fine Ounces of physical
gold that is held or that is to be acquired by the Trust for which the delivery is sought. Share submissions are processed in the
order approved.
Changes in the shares for the nine-month
period ended October 31, 2019 are as follows:
|
|
Shares
|
|
|
Amount
|
|
Shares, beginning of period at February 1, 2019
|
|
|
11,873,295
|
|
|
$
|
150,490,404
|
|
Shares issued
|
|
|
334,730
|
|
|
|
4,925,689
|
|
Shares redeemed
|
|
|
(402,549
|
)
|
|
|
(5,019,765
|
)
|
Shares, end of period at October 31, 2019
|
|
|
11,805,476
|
|
|
$
|
150,396,328
|
|
VanEck Merk Gold Trust
Notes to Unaudited Financial Statements
(continued)
Changes in the shares for the year ended
January 31, 2019 are as follows:
|
|
Shares
|
|
|
Amount
|
|
Shares, beginning of period at February 1, 2018
|
|
|
10,727,887
|
|
|
$
|
135,573,317
|
|
Shares issued
|
|
|
1,495,408
|
|
|
|
19,053,855
|
|
Shares redeemed
|
|
|
(350,000
|
)
|
|
|
(4,136,768
|
)
|
Shares, end of period at January 31, 2019
|
|
|
11,873,295
|
|
|
$
|
150,490,404
|
|
2.4. Income Taxes
The Trust is treated as a “grantor
trust” for U.S. federal tax purposes. As a result, the Trust itself is not subject to U.S. federal income tax. Instead, the
Trust’s income and expenses “flow through” to the shareholders and the Trustee reports 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 October 31, 2019.
2.5. Revenue Recognition Policy
A gain or loss is recognized based on the
difference between the selling price and the average cost method of the gold sold on a trade date basis.
3. INVESTMENT IN GOLD
The following represents the changes in
Ounces of gold and the respective fair value at October 31, 2019:
|
|
Ounces
|
|
|
Fair Value
|
|
Beginning balance as of February 1, 2019
|
|
|
116,515
|
|
|
$
|
154,177,919
|
|
Gold bullion contributed
|
|
|
2,938
|
|
|
|
4,451,198
|
|
Gold bullion distributed
|
|
|
(3,947
|
)
|
|
|
(5,019,758
|
)
|
Realized gain (loss) from gold distributed from in-kind
|
|
|
—
|
|
|
|
96,601
|
|
Change in unrealized appreciation (depreciation)
|
|
|
—
|
|
|
|
20,817,073
|
|
Ending balance as of October 31, 2019
|
|
|
115,506
|
|
|
$
|
174,523,033
|
|
The following represents the changes in
Ounces of gold and the respective fair value at January 31, 2019:
|
|
Ounces
|
|
|
Fair Value
|
|
Beginning balance as of February 1, 2018
|
|
|
105,697
|
|
|
$
|
142,168,257
|
|
Gold bullion contributed
|
|
|
14,257
|
|
|
|
18,490,428
|
|
Gold bullion distributed
|
|
|
(3,439
|
)
|
|
|
(4,136,765
|
)
|
Realized gain (loss) from gold distributed from in-kind
|
|
|
—
|
|
|
|
(148,638
|
)
|
Change in unrealized appreciation (depreciation)
|
|
|
—
|
|
|
|
(2,195,363
|
)
|
Ending balance as of January 31, 2019
|
|
|
116,515
|
|
|
$
|
154,177,919
|
|
4. RELATED PARTIES—SPONSOR, TRUSTEE,
CUSTODIAN AND MARKETING FEES
Fees paid are to the Sponsor as compensation
for services performed under the Trust Agreement. The Sponsor’s fee is payable at an annualized rate of 0.40% of the Trust’s
NAV, accrued on a daily basis computed on the prior Business Day’s NAV and paid monthly in arrears.
The Sponsor has agreed to assume the following
administrative and marketing expenses incurred by the Trust: the Trustee’s monthly fee and out-of-pocket expenses; the Custodian’s
fee; the marketing support fees and expenses (including the fees and expenses of Foreside Fund Services, LLC); expenses reimbursable
under the Custody Agreement; the precious metals dealer’s fees and expenses reimbursable under its agreement with the Sponsor;
exchange listing fees; Securities and Exchange Commission registration fees; printing and mailing costs; maintenance expenses for
the Trust’s website; audit fees; and up to $100,000 per annum in legal expenses.
VanEck Merk Gold Trust
Notes to Unaudited Financial Statements
(continued)
Affiliates of the Trustee, as well as affiliates
of the Custodian may from time to time act as Authorized Participants to purchase or sell gold or shares for their own account,
as agent for their customers and for accounts over which they exercise investment discretion.
On October 22, 2015, the Sponsor, for the
benefit of the Trust, entered into a Marketing Agent Agreement (the “Marketing Agreement”) with Van Eck Securities
Corporation (“VanEck” or “Marketing Agent”). Pursuant to the Marketing Agreement, VanEck provides assistance
in the marketing of the shares. The obligations created by the Marketing Agreement are obligations of the Sponsor of the Trust
and any fees payable under the Marketing Agreement to VanEck are payable from the Sponsor’s fee (as calculated and defined
in the Trust Agreement). The Trust will not incur additional financial or other performance obligations pursuant to the Marketing
Agreement.
5. SHAREHOLDER OWNERSHIP
Merk Hard Currency Fund owned a market
value of $3,663,574 (247,800 shares) which equates to 2.1% ownership in the Trust as of October 31, 2019.
6. CONCENTRATION OF RISK
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 adverse effect on the Trust’s financial position and results of operations.
7. INDEMNIFICATION
Under the Trust’s organizational
documents, each of the Trustee (and its directors, employees and agents) and the Sponsor (and its members, managers, directors,
officers, employees, affiliates) is indemnified against any liability, cost or expense it incurs without gross negligence, bad
faith or willful misconduct on its part and without reckless disregard on its part of its obligations and duties under the Trust’s
organizational documents. 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. However, based on industry experience, management believes the risk
of loss is remote.
8. 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.
* * *
This report is submitted for the general
information of the shareholders. It is not authorized for distribution to prospective investors unless preceded or accompanied
by an effective prospectus, which includes information regarding the Trust’s risks, objectives, fees and expenses and other
information.
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 VanEck 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 VanEck Merk Gold Trust (the “Trust”),
formerly known as the Merk Gold Trust prior to October 26, 2015 and then as the Van Eck Merk Gold Trust prior to April 28, 2016,
is an investment trust formed on May 6, 2014 under New York law pursuant to a depositary trust agreement (as amended, the “Trust
Agreement”). 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 Bank of New York Mellon (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
On each business day that the NYSE Arca
is open for regular trading, as promptly as practicable after 4:00 PM (New York time) the Trustee will value the gold held by the
Trust and will determine the net asset value (“NAV”) of the Trust, as described below.
The NAV of the Trust is the aggregate value
of gold and other assets, if any, of the Trust (other than any amounts credited to the Trust’s reserve account, if any) and
cash, if any, less liabilities of the Trust, which include estimated accrued but unpaid fees, expenses and other liabilities.
All gold is valued based on its Fine Ounce
content, calculated by multiplying the weight of gold by its purity; the same methodology is applied independent of the type of
gold held by the Trust; similarly, the value of up to 430 Fine Ounces of unallocated gold the Trust may hold is calculated by multiplying
the number of Fine Ounces with the price of gold determined by the Trustee as follows. 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 ICE Benchmark Administration as an independent third-party administrator (the “LBMA
PM Gold Price”). The Trustee also determines the NAV per Share. If on a day when the Trust’s NAV is being calculated
the LBMA PM Gold Price 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 ICE Benchmark Administration as an independent third-party administrator (the “LBMA AM Gold
Price”). If no fix is available for the day, the Trustee will value the Trust’s gold based on the most recently announced
LBMA AM Gold Price or LBMA PM Gold Price. Prior to March 20, 2015, the Trustee utilized the daily fix of the price of a Fine Ounce
of gold as performed by the five members of the London gold fix, which has now been replaced by the ICE Benchmark Administration
as an independent third-party administrator.
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.
Material Events
On October 22, 2015, the Sponsor and the
Trustee entered into a First Amendment To Depositary Trust Agreement (the “First Trust Amendment”), amending the Trust
Agreement, dated as of May 6, 2014, to effectuate a change in the name of the Trust from “Merk Gold Trust” to “Van
Eck Merk Gold Trust,” effective as of October 26, 2015. As a result of the name change, all references to “Merk Gold
Trust” in the Trust Agreement were amended to read “Van Eck Merk Gold Trust,” and the shares offered by the Trust
were known as the “Van Eck Merk Gold Shares” (“Shares”).
On October 22, 2015, the Sponsor, for the
benefit of the Trust, entered into a Marketing Agent Agreement (the “Marketing Agreement”) with Van Eck Securities
Corporation (“VanEck” or “Marketing Agent”). Pursuant to the Marketing Agreement, VanEck now provides assistance
in the marketing of the Shares. The obligations created by the Marketing Agreement are obligations of the Sponsor of the Trust
and any fees payable under the Marketing Agreement to VanEck are payable from the Sponsor’s fee (as calculated and defined
in the Trust Agreement). The Trust will not incur additional financial or other performance obligations pursuant to the Marketing
Agreement.
The Sponsor entered into the First Trust
Amendment and effectuated the name change of the Trust in satisfaction of a term of the Marketing Agreement. The Marketing Agreement
further grants VanEck the right to elect to replace Merk as the sponsor of the Trust under specific qualifying circumstances, subject
to the execution and consummation of definitive agreements addressing all regulatory requirements applicable to such transaction
and satisfaction of such requirements, and announcement and related reporting at such time. Specifically, VanEck has a right of
first refusal for the purchase of the sponsorship of the Trust, and all rights attributable thereto, upon the earlier of a commitment
for a change of control of Merk or 15 years from the date of the Marketing Agreement. Additionally, VanEck may elect to replace
Merk as the sponsor of the Trust upon the earlier of the average daily net assets of the Trust during a calendar quarter not attributable
to Shares held by Merk or its affiliates (“Third Party Assets”) equaling $500 million, or VanEck’s compensation
under the fee provisions of the Marketing Agreement reaching in aggregate 10% of the gross proceeds from sale of the Shares (the
“Maximum Fee”).
Merk further agreed that if the Third Party
Assets equal or exceed $500 million, for such period as Merk remains sponsor of the Trust, VanEck may propose the rate of the Sponsor’s
fee to Merk, which Merk shall not unreasonably reject and shall timely adopt if reasonable, provided, VanEck acknowledges that
only the formal named sponsor of the Trust shall have the right to set the Sponsor’s fee at any time.
On April 28, 2016, the Sponsor and the
Trustee entered into a Second Amendment to Depositary Trust Agreement (the “Second Trust Amendment”), amending the
Trust Agreement to effectuate a second change in the name of the Trust from “Van Eck Merk Gold Trust” to “VanEck
Merk Gold Trust,” at the request of the Marketing Agent to reflect its rebranding as “VanEck”. As a result of
the name change, all references to “Van Eck Merk Gold Trust” in the Trust Agreement were amended to read “VanEck
Merk Gold Trust,” and the Shares offered by the Trust are now known as the “VanEck Merk Gold Shares”. Except
for the name change effected pursuant to the Second Trust Amendment, the Trust Agreement remains in full force and effect on its
existing terms.
Change in Settlement Cycle and Amendment
to Authorized Participant Agreements
On March 22, 2017, the Securities and Exchange
Commission adopted an amendment to reduce by one business day the standard settlement cycle for most broker-dealer securities transactions.
Prior to the implementation of the shorter settlement cycle, the standard settlement cycle for such transactions was three business
days, known as T+3. The amended rule shortens the settlement cycle to two business days, or T+2. This change in the settlement
cycle affects both the creation and redemption procedures for Baskets and trading in the Shares. Compliance with the new settlement
cycle went into effect on September 5, 2017.
Due to the fact that the aforementioned
creation and redemption procedures are addressed in the Authorized Participant Agreements by among the Authorized Participants,
the Trustee and the Sponsor, the Trustee and the Sponsor exercised their rights to amend each such agreement to address the new
T+2 settlement cycle and executed First Amendments to each of the Authorized Participant Agreements, effective as of September
5, 2017, and provided timely notice of such amendment to the Authorized Participants. Except for the foregoing amendments, the
Authorized Participant Agreements remain in full force and effect on their existing terms.
Results from Operations
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, however, 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 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 Three Months Ended October 31, 2019 Compared to the Three
Months Ended October 31, 2018
The Trust’s NAV increased from $160,696,297
at July 31, 2019 to $174,523,023 at October 31, 2019, an 8.6% increase, compared to a 3.5% decrease from $138,667,415 at July 31,
2018 to $133,807,253 at October 31, 2018. The increase in the Trust’s NAV in the quarter ended October 31, 2019 resulted
from an increase in the value of investments in gold bullion as compared to the prior period. The number of outstanding Shares
increased from 11,493,707 Shares at July 31, 2019 to 11,805,476 Shares at October 31, 2019 due to the creation of Shares by Authorized
Participants and the creation of 11,769 Shares in the quarter for Sponsor’s fees, as compared to 11,545 Shares for such purpose
in the quarter ended October 31, 2018. The number of outstanding Shares at October 31, 2018 was 11,211,949. The Sponsor’s
fees are payable at an annualized rate of 0.40% of the Trust’s NAV, accrued on a daily basis computed on the prior business
day’s NAV and paid monthly in arrears. Due to the daily accrual but monthly payment, the number of Sponsor’s fee Shares
issued can vary and possibly decrease, even as the number of Shares outstanding increases slightly.
The Trust’s NAV per Share increased
5.7% during the quarter ended October 31, 2019, starting at $13.98 per Share and ending at $14.78 per Share, compared to a decrease
of 0.7%, from $12.01 to $11.93 during the quarter ended October 31, 2018. The Trust’s NAV per share increased slightly less
than the price per ounce of gold on a percentage basis due to the Sponsor’s fees, which were 11,769 Shares in total for the
quarter ended October 31, 2019, compared with 11,545 Shares paid as Sponsor’s fees in the quarter ended October 31, 2018.
The NAV per share of $15.14 on September 4, 2019 was the highest during the quarter, compared with a low of $13.78 on August 1,
2019.
The change in net assets from operations
for the quarter ended October 31, 2019 was $9,201,714, resulting from the Sponsor’s fees of $(173,817), no net realized loss
or gain from gold bullion distributed for redemptions, offset by a net change in unrealized appreciation on investment in gold
bullion of $9,375,531. In comparison, the change in net assets from operations for the quarter ended October 31, 2018 was $(859,759),
resulting from the Sponsor’s fees of $(136,358), a net realized loss from gold bullion distributed for redemptions of $(148,638)
and a net change in unrealized depreciation on investment in gold bullion of $(574,763)
Other than the Sponsor’s fee, the
Trust had no expenses during the quarter ended October 31, 2019 or the quarter ended October 31, 2018.
The Nine Months Ended October 31, 2019 Compared to the Nine
Months Ended October 31, 2018
The Trust’s NAV increased from $154,177,917
at January 31, 2019 to $174,523,023 at October 31, 2019, a 13.2% increase, compared to an 5.9% decrease from $142,168,245 at January
31, 2018 to $133,807,253 at October 31, 2018. The increase in the Trust’s NAV in the nine months ended October 31, 2019 resulted
from an increase in the value of investments in gold bullion as compared to the prior period. The number of outstanding Shares
decreased from 11,873,295 Shares at January 31, 2019 to 11,805,476 Shares at October 31, 2019 due to the redemption of Shares by
Authorized Participants, offset by the creation of new Shares by Authorized Participants and the creation of 34,730 Shares for
Sponsor’s fees, as compared to 34,062 Shares for such purpose in the nine months ended October 31, 2018. The number of outstanding
Shares at October 31, 2018 was 11,211,949. The Sponsor’s fees are payable at an annualized rate of 0.40% of the Trust’s
NAV, accrued on a daily basis computed on the prior business day’s NAV and paid monthly in arrears. Due to the daily accrual
but monthly payment, the number of Sponsor’s fee Shares issued can vary and possibly decrease, even as the number of Shares
outstanding increases slightly.
The Trust’s NAV per Share increased
13.8% during the nine months ended October 31, 2019, starting at $12.99 per Share and ending at $14.78 per Share, compared to an
decreased 10.0%, from $13.25 to $11.93 during the nine months ended October 31, 2018. The Trust’s NAV per share increased
slightly less than the price per ounce of gold on a percentage basis due to the Sponsor’s fees, which were 34,730 Shares
in total for the nine months ended October 31, 2019, compared with 34,062 Shares paid as Sponsor’s fees in the nine months
ended October 31, 2018. The NAV per share of $15.14 on September 4, 2019 was the highest during the nine months ended October 31,
2019, compared with a low of $12.45 on April 23, 2019.
The change in net assets from operations
for the nine months ended October 31, 2019 was $20,439,182, resulting from the Sponsor’s fees of $(474,492), a net realized
gain from gold bullion distributed for redemptions of $96,601 and a net change in unrealized appreciation on investment in gold
bullion of $20,817,073. In comparison, the change in net assets from operations for the nine months ended October 31, 2018 was
$(15,017,259), resulting from the Sponsor’s fees of $(421,618), a net realized loss from gold bullion distributed for redemptions
of $(148,638) and a net change in unrealized depreciation on investment in gold bullion of $(14,447,003).
Other than the Sponsor’s fee, the
Trust had no expenses during the nine months ended October 31, 2019 or the nine months ended October 31, 2018.
For the calendar quarter ended September
30, 2019, the Marketing Agent earned a fee of $5,949 which was paid by the Sponsor in November, 2019; since the initiation of the
Marketing Agent’s efforts on behalf of the Trust on October 22, 2015, a total of $58,865 in Fees has been paid, representing
0.27% of the Maximum Fee potentially payable to the Marketing Agent pursuant to the Marketing Agent Agreement.
Liquidity and 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 October 31, 2019 and October 31, 2018, 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 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 Financial Accounting Standards 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 a participant-directed account maintained under any plan that is tax-qualified
under Code section 401(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, through the Sponsor, has received a private letter ruling from the Internal Revenue Service
that provides that (1) the acquisition of Shares by an IRA or a Tax-Qualified Account will not constitute the acquisition
of a collectible and (2) an IRA or such an account’s 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 those Shares. If a redemption of Shares results
in the delivery of gold to an IRA or Tax-Qualified Account, however, that exchange would constitute the acquisition of a collectible
to the extent provided under that section. See also “ERISA and Related Considerations.”
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 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, accounts, annuities or arrangements are
invested, that are subject to ERISA or the Code, respectively (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 Code section 4975 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 (1) whether the fiduciary has the authority to make the investment under the appropriate
governing Plan instrument, (2) whether the investment would constitute a direct or indirect non-exempt prohibited transaction with
a “party in interest” or “disqualified person,” (3) the Plan’s funding objectives, and (4) whether
under the general fiduciary standards of investment prudence and diversification such investment is appropriate for the Plan, taking
into account the Plan’s overall investment policy, the composition of its investment portfolio and its need for sufficient
liquidity to pay benefits when due.