References in this Annual Report on Form
10-K (“Report”) to the “Trust” refer to the VanEck Merk Gold Trust, and references to the “Sponsor”
refer to Merk Investments LLC, the sponsor of the Trust. References in this Report to the “Trustee” refer to The Bank
of New York Mellon, the trustee of the Trust, and references to the “Custodian” refer to JPMorgan Chase Bank N.A.,
London branch, the custodian of the Trust. As used in this Report: (i) an “Ounce” means one troy ounce, equal to 31.103
grams; (ii) a “Fine Ounce” means an Ounce of 100% pure gold; (iii) “LBMA” means the London Bullion Markets
Association; and (iv) “NYSE Arca” means the NYSE Arca Marketplace operated by NYSE Arca Equities, Inc.
Item 1. Business
The Trust is an investment trust formed
on May 6, 2014 under New York State law pursuant to the Depositary Trust Agreement (“Trust Agreement”), which was
amended effective October 26, 2015, to effectuate a name change to Van Eck Merk Gold Trust. The Trust Agreement was further amended
on April 28, 2016, to effectuate a second name change to VanEck Merk Gold Trust. The purpose of the Trust is to own gold transferred
to the Trust in exchange for shares issued by the Trust (the “Shares”). Each Share represents a fractional undivided
beneficial interest in and ownership of the Trust. Shares are issued by the Trust in blocks of 50,000 called “Baskets”
in exchange for gold from certain registered broker-dealers or other securities market participants (“Authorized Participants”).
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. The assets of the Trust are anticipated to consist solely of gold bullion. On May 6, 2014, the date the
Trust was formed, Virtu Financial (the “Initial Purchaser”) contributed 1,000 Ounces of gold in exchange for 100,000
Shares (or two Baskets). 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 redeemable value of the Shares increased
from $12.99 at January 31, 2019 to $15.48 at January 31, 2020 per share, the Trust’s fiscal year end. Outstanding Shares
in the Trust increased from 11,873,295 Shares at January 31, 2019 to 12,817,945 Shares outstanding at January 31, 2020.
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
(the “1940 Act”), and is not required to register under such act. The Trust does not and will not hold or trade in
commodities futures contracts regulated by the Commodity Exchange Act, as amended (the “CEA”), as administered by
the Commodity Futures Trading Commission (the “CFTC”). The Trust is not a commodity pool for purposes of the CEA and
neither the Sponsor nor the Trustee is subject to regulation as a commodity pool operator or a commodity trading advisor in connection
with the Shares. The Trust has no fixed termination date.
The gold held by the Trust will only be
distributed to Authorized Participants (defined below) in connection with the redemption of Baskets or sold (1) on an as-needed
basis to pay Trust expenses not assumed by the Sponsor, (2) in the event the Trust terminates and liquidates its assets, or (3)
as otherwise required by law or regulation.
The Sponsor of the registrant maintains
an Internet website at www.merkfunds.com and www.merkgold.com, through which the registrant’s Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), are made available free of charge after they have been filed
or furnished to the Securities and Exchange Commission (the “SEC”). Additional information regarding the Trust may
also be found on the SEC’s EDGAR database at www.sec.gov.
Trust Objective
The primary objective of the Trust is
to provide investors with an opportunity to invest in gold through the Shares and be able to take delivery of 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. It does not engage in any activities
designed to obtain a profit from, or to compensate investors for losses caused by, changes in the price of gold.
Each Share represents a fractional undivided
beneficial interest in the Trust’s net assets. The Trust’s assets consist 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%. The Trust receives gold
deposited by Authorized Participants in exchange for the creation of Baskets and delivers gold to Authorized Participants in exchange
for Baskets surrendered to it for redemption. In connection with the delivery of Shares by a Delivery Applicant as described below,
the Sponsor may engage in over-the-counter transactions with a precious metals dealer to exchange gold for physical gold of different
specifications.
Investors may contact their broker-dealer
to purchase and sell Shares. An investor who would like to take delivery of physical gold for its Shares is referred to as a Delivery
Applicant:
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A Delivery Applicant wishing to deliver Shares in exchange for
physical gold must submit to the Sponsor a delivery application (“Delivery Application”) and payment for (1) the
applicable processing fees, and (2) the applicable delivery fees to cover the cost of preparing and transporting physical
gold from the Custodian or the precious metals dealer from which they were obtained to the location specified by the Delivery
Applicant in the Delivery Application. The number of Shares to be delivered must (i) correspond to at least one Fine Ounce
of gold and (ii) have a minimum dollar value in an amount that is specified by the Sponsor from time to time on the Trust’s
website. Taking delivery of physical gold is subject to guidelines intended to minimize the amount of cash that will be distributed
with physical gold. The Delivery Application is not binding until the Shares are delivered to the Trust.
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Upon pre-approval of the Delivery Application by the Sponsor,
a Delivery Applicant shall instruct its broker dealer to submit the Delivery Application and transfer the Shares to the Trustee;
the submission and transfer by the broker-dealer will be a binding and irrevocable request to take delivery of physical gold
in exchange for Shares based on instructions in the Delivery Application (a “Share Submission”).
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Once the Trustee has received a Delivery Applicant’s Share
Submission, a number of Fine Ounces of physical gold not exceeding the Fine Ounces represented by the Shares surrendered will
be delivered to the Delivery Applicant based on instructions in the Delivery Application. To the extent a Delivery Application
specifies London Bars, physical gold will be delivered by the Custodian; to the extent the Delivery Application specifies
physical gold other than London Bars, if available, gold held by the Trust will be exchanged with the help of a precious metals
dealer and delivered to the Delivery Applicant. The Delivery Application process is designed to keep the Fine Ounces represented
by the Share Submission as close as possible to the Fine Ounces of the gold delivered. Any excess Fine Ounces included in
the Share Submission will be sold by the Custodian and the Trustee will deliver proceeds to DTC with instructions to credit
the Delivery Applicant’s brokerage account.
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The Shares are intended to constitute
a cost-efficient mechanism for investors to make an investment in gold. Although the Shares are not the exact equivalent of an
investment in gold, they provide investors with an alternative that allows a level of participation in the gold market through
the securities market. The Shares are:
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Listed and trade on NYSE Arca like other exchange-traded securities
under the symbol “OUNZ.”
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Easily accessible to investors through traditional brokerage
accounts.
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Backed by allocated gold held by the Custodian and no more than
430 Fine Ounces of unallocated gold held with the Custodian.
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Different from other financial products that gain exposure to
gold in that other financial products may use derivatives to gain exposure to the price of gold.
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Cost efficient because the expenses involved in an investment
in physical gold are dispersed among all investors in the Shares.
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Overview of the Gold Industry (unaudited)
Gold demand
Today, gold is used as both a commodity
and a store of value. The first category includes gold jewelry and the gold that has been manufactured into industrial products.
The second category includes gold reserves held by the official sector and private investors.
Jewelry demand
Jewelry demand has historically accounted
for the largest component of total gold demand. At the end of 2017, the estimated total existing above-ground stock of gold amounted
to 6.1 billion Ounces1, and about half of the estimated total has been used in jewelry.
The motivation behind gold jewelry demand
differs in various regions of the world. In the developed countries, gold jewelry is primarily bought for adornment purposes,
while in the developing world, gold jewelry has also been used as a store of value. India, East Asia (excluding Japan) and the
Middle East are the major gold jewelry markets by volume in the developing world; gold jewelry is generally of higher cartage
and the price more closely reflects the value of gold in these regions compared to developed countries.
Gold jewelry demand on average has been
around 73.05 million Ounces per year from the period of 2010 to 2019. Total annual jewelry demand amounted to 67.74 million Ounces
in 2019. The largest decline was in 2016, down 14.54% or 11.5 million Ounces. Gold jewelry demand, as a proportion of total gold
demand was 60% in 2013 before falling to 51.25%, the average during the period, in 2019. In 2019, gold jewelry demand, as a proportion
of total demand, fell by 5.95% from 2018.
Industrial and medical demand
In addition to its application in jewelry,
gold has been widely used in manufacturing and medical treatment. In 2019, 7.81% of gold demand came from industrial fabrication.
From the period of 2010 to 2019, over 70% of industrial demand has been derived from electronic component manufacturing, in large
part due to gold’s high electronic conductivity and natural resistance to corrosion. Gold is also used for industrial decoration,
such as gold plating and coating.
Industrial use of gold is more common
in the developed world, whereas most of the gold fabrication in developing nations is typically for jewelry. Demand for gold used
in electronics manufacturing fell sharply in 2009, down 11.7% from 2008, likely caused by weak economic conditions, but it rebounded
17.3% in 2010. From 2010 thereafter, demand for gold used in electronics fell every year between 2010 and 2016, before rising
to 8.2 million Ounces in 2017, 8.5 million Ounces in 2018 and fell to 8.4 million ounces in 2019.
Additionally, gold has long been used
for medical and dental purposes. Its outstanding bio-compatibility, malleability and resistance to bacterial colonization make
it a well-suited material for various biomedical applications in the human body. Dental use is the primary medical application.
Other medical uses include gold wires used in heart transplants and gold-plated stents to support blood vessels. Demand for gold
from this sector was down slightly in recent years.
Investment demand
As of 2017, around 2.3 billion Ounces
of above-ground gold was held as an investment or store of value, accounting for 38.2% of the estimated total, under half of which
was held by the official sector. In 2017, the official stock purchased by the official sector was 12.2 million Ounces.
Central banks and supranational organizations
(e.g., the International Monetary Fund (the “IMF”) and Bank of International Settlements (the “BIS”)
hold gold as part of their reserve assets. Central banks affect the gold market through buying, selling and lending, as well as
swaps and other derivative activities.
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1
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Source:
World Gold Council (also for subsequent industry data, unless otherwise annotated)
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Gold is also favored by the private sector
as a store of value and a means of investment. Unlike equities, bonds and currencies, gold does not run the risk of issuers’
default or mismanagement and is not a liability of any government or corporation. Many investors may consider gold to be a safe
haven investment, a portfolio diversifier and inflation hedge.
Over the past decade, there has been a
steady rise in the number of investors worldwide holding gold. A large part of this trend has been the advent and proliferation
of gold-tracking exchange-traded funds, which allow investors greater access to investments in gold. In 2019, ETF investment demand
was 9.21% of the total annual gold demand, as compared to 1.7% in 2018.
Sources of gold supply
Sources of gold supply include mine production,
secondary supply from recycled gold and official sector sales.
Mine production
The largest portion of gold supply comes
from mine production, including gold produced both from primary deposits and from secondary deposits where the gold is mined as
a by-product. All the recorded gold ever mined in human history amounts to approximately 6.35 billion Ounces, or 197,576 metric
tons. To put this in perspective, all the gold ever mined would only fill two Olympic-sized swimming pools.
Gold is produced from mines on every continent
except Antarctica (where mining is forbidden by the Antarctica Treaty). South Africa used to be the world’s largest gold
producing country. At its peak in the early 1970s, South Africa contributed over 70% of world production. However, over the past
four decades, South African output has been declining while other countries have expanded gold mining considerably.
Over recent years, gold has been increasingly
mined in developing countries; China is currently the world’s largest gold producing country. Other notable gold producing
countries include Australia, Russia and South Africa. In 2019, global mine production amounted to 111.4 million Ounces, which
was 1.5 million Ounces lower than the year prior.
Recycled gold
Recycled gold, or scrap gold, is the second
largest source of gold supply. Gold’s indestructibility means it can be recovered from recycled jewelry and industrial products.
This gold can then be melted, refined and cast into bullion bars for resale in the gold market. Supplies emanating from recycled
gold have risen steadily in the past two decades and are predominantly sourced from recycled gold jewelry.
Recycled gold supply is highly affected
by gold prices and economic conditions. Supplies reached elevated levels during the 1997–1998 Asian financial crisis and
hit a record of 41.2 million Ounces in 2009, spurred by the global financial crisis and rising gold prices. Since then, the total
amount of scrap gold has risen to 41.9 million Ounces in 2019.
In 2016, the most recent year for which
comprehensive data is available, China, India, and Turkey are the three largest countries supplying recycled gold, accounting
for 34.8% of total recycled gold recovered. China is now the largest scrap-supplying nation, supplying 7.5 million Ounces, or
18.3% of total secondary supply, in 2016. India and Turkey contributed 10.4% and 6.1% to the total secondary gold supply, respectively,
in 2016.
Official sector sales
Approximately 17.2%2 of total
above-ground gold stock is held by the official sector, a proportion that had declined over recent years before the global financial
crisis. During 1989–2007, official sector sales outstripped annual purchases, meaning the official sector became a net seller
of gold to the private sector.
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2
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Source:
World Gold Council
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From 1989 to 2007, the official sector
supplied an approximate total of 238.8 million Ounces in gold to the private sector. In 1999, the European Central Bank and 14
other central banks signed the first Central Bank Gold Agreement (a “CBGA”). The signatory institutions agreed not
to enter the gold market as sellers except for already decided sales. In the second CBGA, Bank of Greece replaced the Bank of
England. In August 2009, 19 central banks announced the third CBGA. Under this agreement, the annual ceiling for gold sales was
reduced to 12.9 million Ounces.
Since the onset of the financial crisis,
the official sector reversed its role as a net seller over the previous nineteen years. From 2008 to 2013, the official sector
was a net purchaser of 60.0 million Ounces of gold. Central banks of major developing economies, including the People’s
Bank of China, the Reserve Bank of India and the Russian central bank, have substantially increased gold reserves. In September
2009, the IMF Executive Board approved the sale of 13.0 million Ounces, approximately one-eighth of the Fund’s total holdings
of gold, to help boost its lending resources. The IMF completed the gold sales program in December 2010. In 2019, the net buying
from the Central Bank of Russia was 5.1 million Ounces, which pushed their gold reserves to 73 million Ounces. Also, Turkey and
Kazakhstan increased their gold reserves by 5.1 million Ounces and 1.1 million Ounces, respectively, in 2019. The combined share
of Russia, Turkey and Kazakhstan increased from 58% in 2018 to 67% in 2019 and it makes up for a large portion of the global demand
in 2019.
The gold market and price movement
Global gold trade consists of the over-the-counter
(“OTC”) market, the futures and options markets and the London interbank market.
OTC market
The OTC market accounts for the largest
percentage of global gold trading volume. It trades on a 24-hour per business day continuous basis and provides a relatively flexible
market in terms of quotes, size, price, destinations for delivery and other factors. The standard trade size ranges between 5,000
and 10,000 Ounces.
OTC market makers include the nine market-making
members of the LBMA, and the main centers are London, New York and Zurich. Market participants include jewelry manufacturers,
mining companies, central banks, investors and speculators. Liquidity in the OTC market varies during the day, with the most liquid
time periods generally occurring in New York business day mornings, when trading hours in European time zones overlap with trading
hours in the United States.
The London Bullion Market is the largest
wholesale OTC market for gold and is operated by the LBMA, which acts as the principal point of contact between the market and
its regulators. Gold bars must meet the requirements defined by the LBMA.
Futures and options exchanges
The major futures and options exchanges
include the New York Commodities Exchange (“COMEX”) (an affiliate of the Chicago Mercantile Exchange, Inc.), the Multi
Commodity Exchange of India (“MCX”), the Tokyo Commodities Exchange (“Tocom”), and the Shanghai Futures
Exchange (“SHFE”). Other leading exchanges for gold derivatives trading include NYSE Liffe and Dubai Gold & Commodities
Exchange. Gold futures and options are traded on these exchanges in standardized transaction sizes and delivery dates. Only a
small portion of the gold futures market turnover is typically physically delivered.
The COMEX is the largest gold futures
and options exchange. In 2019, total gold futures and options contract volume amounted to 10.3 million and 1.8 million contracts,
respectively3. In 2007, the Chicago Mercantile Exchange merged with the CBOT to form the Chicago Mercantile Exchange
Group (the “CME Group”), and in 2008 the CME Group acquired the COMEX.
In November 2013, the Intercontinental
Exchange acquired NYSE Liffe, the sixth largest exchange for gold futures trading, as part of the acquisition of NYSE Euronext.
Allocated and Unallocated Gold
Allocated gold is stored in a vault under
a custody arrangement, and the individual bars are the property of the owner. When held in this fashion, allocated gold is neither
an asset, nor a liability, of a financial institution. As it is typically held under a custody relationship, storage fees and
insurance premiums are common when holding gold in allocated form.
From an investor’s standpoint, unallocated
gold (sometimes referred to as “paper gold”) is a claim on a non-specific pool of gold held by a financial institution.
It is typically held in a gold account at the financial institution. There are no tangible gold bars stored in the investor’s
name; rather, the investor has a claim on the financial institution’s assets (the underlying gold).
Both methods of investing give investors
exposure to gold. However, some have been cautious of utilizing unallocated gold, as it represents a liability from a financial
institution’s standpoint and such a financial institution may lend out the underlying gold an investor has a claim on.
Historical movements in the gold price
The following chart illustrates the historical
movements in the price of gold for the period January 1970 to January 2020, measured in U.S. dollar per Ounce.
After reaching a 20-year low of just over
$250 per Ounce in the summer of 1999, the price of gold gradually increased, as a result of the strong rise in physical demand,
especially in the major gold markets, including China, Egypt, India and Japan. The upward price trend that began in 2001 continued
through May 2006.
Following a peak around $725 per Ounce
in May 2006, the gold price fell to just over $560 in October 2006. Investors’ concerns that monetary authorities would
move to counter the threat of rising inflation by aggressively raising interest rates is frequently cited as the reason for this
price correction.
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However, as the Federal Reserve Bank began to reduce interest
rates in response to the subprime mortgage crisis in August 2007, the gold price rallied again. The continued reduction in
the Federal Funds rate may have helped drive the price of gold to a fresh high above $1,010 in March 2008.
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As the subprime mortgage problems escalated into a global financial
crisis in late 2008 and the Eurozone debt crisis deepened in 2011, the gold price successively reached new record highs. The
gold price reached a historically high level of $1,900.23 on September 5, 2011. Market concerns surrounding the implications
of monetary policies, political uncertainty, sovereign credit risks and U.S. dollar weakness may have underpinned gold demand
as a store of value through this period.
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In 2019, Gold started off at the year
at $1,282.49 per Ounce. The metal reached a high of $1,552.55 per Ounce on September 4, 2019. The low for 2019 was $1,270.69 on
May 2, 2019 and ended the year at $1,517.27 per Ounce.
Volatility
Annualized Standard Deviation
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S&P 500
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Spot Gold
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Spot Silver
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1991–1995
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10.1
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%
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9.8
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%
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23.2
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%
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1996–2000
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16.0
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%
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13.0
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%
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22.4
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%
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2001–2005
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14.9
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%
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13.5
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%
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24.1
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%
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2006–2010
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17.8
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%
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19.5
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%
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34.5
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%
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2011–2015
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11.7
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%
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18.4
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%
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35.5
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%
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2016–2019
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9.4
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%
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13.2
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%
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21.3
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%
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Source: Bloomberg, Merk Investments
LLC
Gold price volatility was 9.8% during
1991–1995 and rose to 13.0% for the period of 1996–2000, 13.5% for 2001–2005 and 19.5% for 2006–2010.
Gold price volatility declined to 18.4% during the 2011–2015 period. In 2016-2019, gold price volatility came down further
to 13.2%. The price of gold has historically been less volatile than other commodities such as silver. This lower volatility may
reflect gold’s role as a financial asset and the much broader liquid financial market that gold has compared to other commodities.
Also, the monthly return on gold price was less volatile than the S&P 500 index during 1991–2005, but it has been slightly
higher than that of the S&P 500 from January 2006 to December 2019.
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 a 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.
The Trustee’s estimation of accrued
but unpaid fees, expenses and liabilities will be conclusive upon all persons interested in the Trust, and no revision or correction
in any computation made under the Trust Agreement will be required by reason of any difference in amounts estimated from those
actually paid.
The Sponsor and the investors may rely
on any evaluation or determination of any amount made by the Trustee, and except for any determination by the Sponsor as to the
price to be used to evaluate gold, the Sponsor will have no responsibility for the evaluation’s accuracy. The determinations
the Trustee makes will be made in good faith upon the basis of, and the Trustee will not be liable for any errors contained in,
information reasonably available to it. The Trustee will not be liable to the Sponsor, Authorized Participants, the investors
or any other person for errors in judgment. However, the preceding liability exclusion will not protect the Trustee against any
liability resulting from bad faith or gross negligence in the performance of its duties
Trust Expenses
The Trust’s only ordinary recurring
expense is the remuneration due to the Sponsor of 0.40% of the NAV of the Trust (the “Sponsor’s Fee”). 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 monthly fee and out-of-pocket expenses; the Custodian’s fee; the fees and expenses of Foreside
Fund Services, LLC; expenses reimbursable under the Trust’s Custody Agreement with the Custodian (the “Custody Agreement”);
the precious metals dealer’s fees and expenses reimbursable under its agreement with the Sponsor; exchange listing fees;
SEC 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. The Sponsor also paid the costs of the Trust’s organization and the initial sale of the Shares,
including applicable SEC registration fees.
The Sponsor’s Fee will accrue daily
based on the prior business day’s NAV and will be payable in Shares corresponding to the NAV of the Shares at the time of
payment on a monthly basis in arrears. The fee will be paid by delivering that number of Shares which equals the daily accrual
of the Sponsor’s Fee for such prior month based on the NAV of the Shares on the first business day of the following month.
In addition to the Sponsor’s Fee,
the Sponsor receives the exchange fee paid by Delivery Applicants in the exchange process. Such fees are used to recoup the expenses
the Sponsor bears for over-the-counter transactions. The Sponsor may earn a profit on its fees.
From time to time, the Sponsor may waive
all or a portion of the Sponsor’s Fee at its discretion. The Sponsor is under no obligation to continue a waiver after the
end of a stated period, and if such waiver is not continued, the Sponsor’s Fee will thereafter be paid in full. Presently,
the Sponsor does not intend to waive any of its fees.
Furthermore, the Sponsor may, in its sole
discretion, agree to rebate all or a portion of the Sponsor’s Fee attributable to Shares held by certain institutional investors
subject to minimum share holding and lock up requirements as determined by the Sponsor to foster stability in the Trust’s
asset levels. Any such rebate will be subject to negotiation and written agreement between the Sponsor and the investor on a case
by case basis. The Sponsor is under no obligation to provide any rebates of the Sponsor’s Fee. Neither the Trust nor the
Trustee will be a party to any Sponsor’s Fee rebate arrangements negotiated by the Sponsor.
The Sponsor will assume certain extraordinary
expenses which are not usually incurred during the normal course of business, such as litigation expenses, subject to a total
of $100,000 per annum. Extraordinary expenses of the Trust that are not assumed by the Sponsor may be paid by the Sponsor at its
sole discretion and reimbursed by the Trust in Shares corresponding to the value of gold at the time of reimbursement.
Otherwise, the Trustee will, when directed
by the Sponsor, and, in the absence of such direction, in its discretion, sell gold in such quantity and at such times as may
be necessary to permit payment in cash of the Trust’s extraordinary expenses not assumed by the Sponsor. The Trustee is
authorized to sell gold as directed by the Sponsor or otherwise at such times and in the smallest amounts required to permit such
payments as they become due, it being the intention to avoid or minimize the Trust’s holdings of assets other than gold.
Accordingly, the amount of gold to be sold will vary from time to time depending on the level of the Trust’s expenses and
the market price of gold. The Custodian may purchase from the Trust, at the request of the Trustee, gold needed to cover Trust
expenses not assumed by the Sponsor at the price used by the Trustee to determine the value of gold held by the Trust on the date
of the sale.
Cash held by the Trustee pending payment
of the Trust’s expenses will not bear any interest.
The Sponsor’s Fee for the year ended
January 31, 2020 was $660,166.
Creations and Redemption of Shares
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 the Depository Trust Company (“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 in the Trust Agreement. To become an Authorized Participant, a person must enter into
an Authorized Participant Agreement with the Sponsor and the Trustee (“Authorized Participant Agreement”). 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 (the “Trust
Allocated Account”) such that the Trust’s unallocated account (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 (a “Share Submission Day”). 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 (i.e., 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.
Creation Procedures—Authorized
Participants
On any business day, an Authorized Participant
may place an order with the Trustee to create one or more Baskets. For purposes of processing both purchase and redemption orders,
a “business day” means any day other than a day: (1) when the NYSE Arca is closed for regular trading; or (2) if the
order or other transaction requires the receipt or delivery, or the confirmation of receipt or delivery, of gold in the United
Kingdom or in some other jurisdiction on a particular day, (A) when banks are authorized to close in the United Kingdom or in
such other jurisdiction or when the London gold market is closed or (B) when banks in the United Kingdom or in such other jurisdiction
are, or the London gold market is, not open for a full business day and the order or other transaction requires the execution
or completion of procedures which cannot be executed or completed by the close of the business day. Purchase orders must be placed
by 3:59:59 PM (New York time). The day on which the Trustee receives a valid purchase order is the purchase order date.
By placing a purchase order, an Authorized
Participant agrees to deposit gold with the Trust, as described below. Prior to the delivery of Baskets for a purchase order,
the Authorized Participant also must have wired to the Trustee the amount of the non-refundable transaction fee due for the purchase
order and an amount equal to all taxes, governmental charges and fees payable in connection with such deposit, the transfer of
gold and the issuance and delivery of Shares.
Determination of Required Deposits
The amount of the required gold deposit
for a Basket is determined by dividing the number of Fine Ounces of gold held by the Trust by the number of Baskets outstanding,
as adjusted for the amount of gold constituting estimated accrued but unpaid fees and expenses of the Trust. The number of Baskets
outstanding is determined by dividing the number of Shares outstanding by 50,000 (or other number of Shares in a Basket for such
business day).
Fractions of a Fine Ounce of gold smaller
than 0.001 of a Fine Ounce included in the gold deposit amount are disregarded in the foregoing calculation. All questions as
to the composition of a gold deposit for a Basket will be finally determined by the Trustee. The Trustee’s determination
of the required gold deposit for a Basket shall be final and binding on all persons interested in the Trust.
Delivery of Required Deposits
An Authorized Participant who places a
purchase order is responsible for crediting its unallocated account, if held at the Custodian, with the required gold deposit
amount in gold and, if the Authorized Participant does not maintain its unallocated account with the Custodian, causing the required
gold deposit to be transferred to the Custodian, by 11:00 AM, London, England time, on the third business day following the purchase
order date. No Shares are issued unless and until the Custodian has informed the Trustee that it has credited to the Trust Allocated
Account at the Custodian the corresponding amount of gold. If the Custodian has notified the Trustee and the Sponsor that it is
unable to move the gold from the Trust Unallocated Account to the Trust Allocated Account in connection with a particular purchase
order or generally, the Trustee will, unless otherwise instructed by the Sponsor, reject the particular purchase order as well
as any other subsequent purchase orders on the same business day. Upon receipt of the gold deposit amount, the Custodian, after
receiving appropriate instructions from the Authorized Participant and the Trustee, will use commercially reasonable endeavors
to transfer by 2:00 PM (London, England time) on the third business day following the purchase order date the gold deposit amount
in gold to the Trust Unallocated Account, and on the same business day, acting on standing instructions given by the Trustee,
the gold deposit amount from Trust Unallocated Account to the Trust Allocated Account by allocating specific bars of gold such
that no more than 430 Fine Ounces remain in the Trust Unallocated Account. Upon transfer of the gold deposit amount to the Trust
Allocated Account, the Trustee will direct DTC to credit the number of Baskets ordered to the Authorized Participant’s DTC
account. The expense and risk of delivery, ownership and safekeeping of gold until such gold has been received by the Trust shall
be borne solely by the Authorized Participant.
Because gold is allocated only in multiples
of whole bars, the amount of gold allocated from the Trust Unallocated Account to the Trust Allocated Account may be less than
the total Fine Ounces credited to the Trust Unallocated Account. Any balance will be held in the Trust Unallocated Account. The
Custodian may hold no more than 430 Fine Ounces of gold (maximum weight corresponding to one London Bar) in the Trust Unallocated
Account at the close of a business day.
Rejection of purchase orders
The Trustee may reject a gold deposit
at any time when the Trustee’s transfer books are closed or if the Sponsor thinks it necessary or advisable for any reason.
None of the Trustee, the Sponsor or the Custodian will be liable for the rejection of any purchase order or gold deposit.
Redemption Procedures—Authorized
Participants
The procedures by which an Authorized
Participant can redeem one or more Baskets mirror the procedures for the creation of Baskets. On any business day, an Authorized
Participant may place an order with the Trustee to redeem one or more Baskets. Redemption orders must be placed no later than
3:59:59 PM (New York time) on each business day the NYSE Arca is open for regular trading. A redemption order so received is effective
on the date it is received in satisfactory form by the Trustee. The redemption procedures allow only Authorized Participants to
redeem Baskets. An investor may not redeem Baskets other than through an Authorized Participant.
By placing a redemption order, an Authorized
Participant agrees to deliver the Baskets to be redeemed through DTC’s book-entry system to the Trust no later than the
third business day following the effective date of the redemption order. Prior to the delivery of the redemption distribution
for a redemption order, the Authorized Participant must also have wired to the Trustee the non-refundable transaction fee due
for the redemption order.
The redemption distribution from the Trust
will consist of a credit to the redeeming Authorized Participant’s unallocated account representing the amount of the gold
held by the Trust evidenced by the Shares being redeemed as of the date of the redemption order. Fractions of a Fine Ounce included
in the redemption distribution smaller than 0.001 of a Fine Ounce are disregarded. Redemption distributions will be subject to
the deduction of any applicable tax, fees or other governmental charge that may be due, as well as any charges or fees in connection
with the transfer of gold and the issuance and delivery of Shares, and any expense associated with the delivery of gold other
than by credit to an Authorized Participant’s unallocated account with the Custodian.
Delivery of redemption distribution
The redemption distribution due from the
Trust is delivered to the Authorized Participant on the third business day following the redemption order date if, by 9:00 AM
(New York time) on such third business day, the Trustee’s DTC account has been credited with the Baskets to be redeemed.
The Custodian will arrange for the redemption
amount in gold to be transferred from the Trust Allocated Account to the Trust Unallocated Account and, thereafter, to the redeeming
Authorized Participant’s unallocated account. The Authorized Participant and the Trust each are at risk in respect of gold
credited to their respective unallocated accounts in the event of the Custodian’s insolvency. See “Risk Factors—The
Trust Would Be An Unsecured Creditor of the Custodian in the Event of Insolvency.”
As with the allocation of gold to the
Trust Allocated Account that occurs upon a purchase order, if in transferring gold from the Trust Allocated Account to the Trust
Unallocated Account in connection with a redemption order there is an excess amount of gold transferred to the Trust Unallocated
Account, the excess over the gold redemption amount will be held in the Trust Unallocated Account. The Custodian may hold no more
than 430 Fine Ounces of gold (maximum weight corresponding to one London Bar) in the Trust Unallocated Account at the close of
each business day.
Suspension or rejection of redemption
orders
The Trustee may, in its discretion, and
will when directed by the Sponsor, suspend the right of redemption, or postpone the redemption settlement date or reject a particular
redemption order (1) for any period during which the NYSE Arca is closed other than customary weekend or holiday closings, or
trading on the NYSE Arca is suspended or restricted or (2) for any period during which an emergency exists as a result of which
delivery, disposal or evaluation of gold is not reasonably practicable. Neither the Sponsor nor the Trustee will be liable to
any person or in any way for any loss or damages that may result from any such suspension or postponement.
The Trustee will reject a redemption order
if the order is not in proper form as described in the Authorized Participant Agreement or if the fulfillment of the order, in
the opinion of its counsel, might be unlawful.
The Sponsor
The Sponsor, Merk Investments LLC, is
a Delaware limited liability company. The Sponsor’s office is located at 44 Montgomery Street, #3730, San Francisco, California,
94104. The Sponsor has provided investment advisory services to mutual funds since 2005. As of December 31, 2019, the Sponsor
had approximately $190.8 million of assets under management. The Sponsor’s role is discussed below, and it has undertaken
the responsibilities set forth below.
The Sponsor’s Role
The Sponsor arranged for the creation
of the Trust, the registration of the Shares for their public offering in the United States and the listing of the Shares on the
NYSE Arca. 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 monthly fee and out-of-pocket expenses; the Custodian’s fee; the fees
and expenses of Foreside Fund Services, LLC and other marketing expenses; expenses reimbursable under the Custody Agreement; the
precious metals dealer’s fees and expenses reimbursable under its agreement with the Sponsor; exchange listing fees; SEC
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. The Sponsor is paid in Shares in lieu of cash.
The Sponsor will not exercise day-to-day
oversight over the Trustee or the other service providers to the Trust. The Sponsor may remove the Trustee and appoint a successor
Trustee if: (1) the Trustee ceases to meet certain objective requirements (including the requirement that it have capital, surplus
and undivided profits of at least $150 million); (2) having received written notice of a material breach of its obligations under
the Trust Agreement, the Trustee has not cured the breach within 30 days; or (3) the Trustee fails to consent to the implementation
of an amendment to the Trust’s initial Internal Control Over Financial Reporting deemed necessary by the Sponsor and, after
consultations with the Sponsor, the Sponsor and the Trustee fail to resolve their differences regarding the proposed amendment.
The Sponsor also has the right to replace the Trustee during the 90 days following any merger, consolidation or conversion in
which the Trustee is not the surviving entity or, in its discretion, on the fifth anniversary of the creation of the Trust or
on any subsequent third anniversary thereafter. The Sponsor also has the right to direct the Trustee to appoint any new or additional
Custodians that the Sponsor selects.
The Sponsor: (1) will develop a marketing
plan for the Trust on an ongoing basis; (2) will prepare marketing materials regarding the Shares; (3) will maintain the Trust’s
website; (4) may engage in over-the-counter transactions with a precious metals dealer to exchange the Trust’s gold for
gold of different specifications as requested by a Delivery Applicant in a Delivery Application; (5) may provide instructions
for assaying gold, and other instructions relating to custody of the Trust’s gold, as necessary; (6) may request the Trustee
to order Custodian audits (to the extent permitted under the Custody Agreement); and (7) will review Delivery Applications from
Delivery Applicants wishing to take delivery of physical gold for their Shares and coordinate the delivery of physical gold to
the Delivery Applicants.
The Sponsor periodically engages in over-the-counter
transactions to exchange London Bars for physical gold of other specifications. The Sponsor engages in such transactions pursuant
to instructions from a Delivery Applicant who requests 10 Ounce Bars (containing 10 Fine Ounces of gold), 1 Ounce Bars (containing
1 Fine Ounce of gold) and gold coins in exchange for their Shares. The Sponsor pays for such conversion but seeks to recover these
costs by charging an exchange fee to Delivery Applicants exchanging Shares for physical gold. The exchange fee will not exactly
reflect the actual cost of conversion to the Sponsor and may reflect a markup to compensate the Sponsor for the risk the Sponsor
is taking on by exchanging physical gold for physical gold other than London Bars before knowing investor demand for delivery
or market conditions at the time investor demand for delivery changes. The Sponsor selects the precious metals dealers with whom
it seeks to exchange the Trust’s physical gold.
The Trustee
The Bank of New York Mellon, a banking
corporation organized under New York State law with trust powers, serves as the Trustee. The Trustee has a trust office at 2 Hanson
Place, Brooklyn, New York 11217. The Trustee is subject to supervision by the New York State Financial Services Department and
the Board of Governors of the Federal Reserve System. Information regarding creation and redemption Basket composition, NAV of
the Trust, transaction fees for the creation and redemption of Baskets and the names of the parties that have executed an Authorized
Participant Agreement may be obtained from the Trustee. A copy of the Trust Agreement is available for inspection at the Trustee’s
trust office identified above. Under the Trust Agreement, the Trustee is required to maintain capital, surplus and undivided profits
of at least $150 million.
The Trustee’s Role
The Trustee is generally responsible for
the day-to-day administration of the Trust, including keeping the Trust’s operational records. The Trustee’s principal
responsibilities include: (1) valuing the Trust’s gold and calculating the NAV per share of the Trust, (2) supplying inventory
information to the Sponsor for the Trust’s website; (3) receiving and processing orders from Authorized Participants for
the creation and redemption of Baskets; (4) coordinating the processing of orders from Authorized Participants with the Custodian
and DTC, including coordinating with the Custodian the receipt of unallocated gold transferred to the Trust in connection with
each issuance of Baskets; (5) cooperating with the Sponsor, the Custodian and the precious metals dealer in connection with the
delivery of physical gold to Delivery Applicants in exchange for their Shares; (6) issuing and allocating Shares to the Sponsor
in lieu of paying the Sponsor’s Fee in cash; (7) issuing and allocating Shares to the Sponsor to reimburse cash payments
owed by the Trust, but undertaken by the Sponsor; (8) selling the Trust’s gold pursuant to the Sponsor’s direction
or otherwise as needed to pay any extraordinary Trust expenses that are not assumed by the Sponsor; (9) holding the Trust’s
cash and other financial assets, if any; (10) when appropriate, making distributions of cash or other property to investors; and
(11) receiving and reviewing reports on the custody of and transactions in the Trust’s gold from the Custodian and taking
such other actions in connection with the custody of gold as the Sponsor instructs. The Trustee shall, with respect to directing
the Custodian, act in accordance with the instructions of the Sponsor. If the Custodian resigns, the Trustee shall appoint any
replacement Custodian selected by the Sponsor in accordance with the Trust Agreement. Under the agreement with the Custodian,
the Trustee, the Sponsor and the Sponsor’s auditors and inspectors may visit the premises of the Custodian for the purpose
of examining the Trust’s gold and certain related records maintained by the Custodian.
The Trustee intends to regularly communicate
with the Sponsor in connection with the administration of the Trust. The Trustee does not monitor the performance of the Custodian
other than to review the reports provided by the Custodian pursuant to the Custody Agreement. The Trustee, along with the Sponsor,
will liaise with the Trust’s legal, accounting and other professional service providers as needed. The Trustee will assist
and support the Sponsor with the preparation of all periodic reports required to be filed with the SEC on behalf of the Trust.
The Trustee’s monthly fees and out-of-pocket expenses will be paid by the Sponsor. 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.
The Trustee will keep proper books of
registration and transfer of Shares at its office located in New York or such office as it may subsequently designate. These books
and records are open to inspection by any person who establishes to the Trustee’s satisfaction that such person is an investor
at all reasonable times during the usual business hours of the Trustee. The Trustee will keep a copy of the Trust Agreement on
file in its office which will be available for inspection on reasonable advance notice at all reasonable times during its usual
business hours by any investor.
The Custodian
JPMorgan serves as the Custodian for the
Trust. The Custodian is a national banking association organized under the laws of the United States. The Custodian is subject
to supervision by the Federal Reserve Bank of New York and the Federal Deposit Insurance Corporation. The Custodian’s office
is located at 25 Bank Street, Canary Wharf, London E14 SJP. In addition to supervision and examination by the federal banking
authorities, London custodian operations are generally subject to supervision by the Financial Services Authority.
The Custodian’s Role
The Custodian is responsible for holding
the Trust’s allocated gold as well as receiving and converting allocated and unallocated gold on behalf of the Trust. Unless
otherwise agreed between the Trustee (as instructed by the Sponsor) and the Custodian, physical gold must be held by the Custodian
at its London vault premises. At the end of each business day, the Custodian will hold no more than 430 Fine Ounces of unallocated
gold for the Trust, which corresponds to the maximum Fine Ounce weight of a London Bar. The Custodian converts the Trust’s
gold between allocated and unallocated gold when: (1) Authorized Participants engage in creation and redemption transactions with
the Trust; (2) gold is sold to pay Trust expenses; or (3) physical gold is converted into unallocated form to facilitate the exchange
of Shares by a Delivery Applicant for gold. The Custodian will facilitate the transfer of gold in and out of the Trust through
the unallocated gold accounts it may maintain for each Authorized Participant and the precious metals dealer and through the unallocated
gold accounts it will maintain for the Trust. The Custodian is responsible for allocating specific bars of gold to the Trust Allocated
Account.
The Custodian will provide the Trustee
with regular reports detailing the gold transfers in and out of the Trust Unallocated Account with the Custodian and identifying
the gold bars held in the Trust Allocated Account.
The Custodian’s fees and expenses
are paid by the Sponsor. The Custodian and its affiliates may from time to time act as Authorized Participants or purchase or
sell gold or Shares for their own account, as an agent for their customers and for accounts over which they exercise investment
discretion. The Trustee, on behalf of the Trust, has entered into the Custody Agreement with the Custodian, under which the Custodian
maintains the Trust Unallocated Account and the Trust Allocated Account.
Pursuant to the Trust Agreement, if, upon
the resignation of the Custodian, there would be no custodian acting pursuant to the Custody Agreement, the Trustee shall, promptly
after receiving notice of such resignation, appoint a substitute custodian or custodians selected by the Sponsor pursuant to custody
agreement(s) approved by the Sponsor (provided, however, that the rights and duties of the Trustee under the Trust Agreement and
the custody agreement(s) shall not be materially altered without its consent). When directed by the Sponsor, and to the extent
permitted by, and in the manner provided by, the Custody Agreement, the Trustee shall remove the Custodian and appoint a substitute
or additional custodian or custodians selected by the Sponsor. After the entry into the Custody Agreement(s), the Trustee shall
not enter into or amend any Custody Agreement with a custodian without the written approval of the Sponsor (which approval shall
not be unreasonably withheld or delayed). When instructed by the Sponsor, the Trustee shall demand that a custodian of the Trust
deliver such of the Trust’s gold held by it as is requested of it to any other custodian or such substitute or additional
custodian or custodians directed by the Sponsor. Each such substitute or additional custodian shall, forthwith upon its appointment,
enter into a Custody Agreement in form and substance approved by the Sponsor.
Under the Trust Agreement, the Sponsor
is responsible for appointing accountants or other inspectors to monitor the accounts and operations of the Custodian and any
successor custodian or additional custodian and for enforcing the obligations of each such custodian as is necessary to protect
the Trust and the rights and interests of the investors. The Trustee has no obligation to monitor the activities of the Custodian
other than to receive and review such reports of the gold held for the Trust by such Custodian and of transactions in gold held
for the account of the Trust made by such Custodian pursuant to the Custody Agreement.
When instructed by the Sponsor, the Trustee
will take action to remove gold from one custodian to another custodian selected by the Sponsor. In connection with such transfer
of physical gold, the Trustee will, at the direction of the Sponsor, cause the physical gold to be weighed or assayed. The Trustee
shall have no liability for any transfer of physical gold or weighing or assaying of delivered physical gold as directed by the
Sponsor, and in the absence of such direction shall have no obligation to effect such a delivery or to cause the delivered physical
gold to be weighed, assayed or otherwise validated.
Inspection of Gold
Under the Custody Agreement, the Custodian
will allow the Sponsor and the Trustee and their physical gold auditors (currently Inspectorate), access to its premises during
normal business hours, to examine the physical gold and such records as they may reasonably require to perform their respective
duties with regard to investors in Shares. The Trustee agrees that any such access shall be subject to execution of a confidentiality
agreement and agreement to the Custodian’s security procedures, and any such audit shall be at the Trust’s expense.
The Sponsor exercised its right to visit
the Custodian’s premises and inspect the Trust’s gold and related records most recently on January 16, 2020
During the fiscal year that ended January 31,
2020, Inspectorate International Limited, a leading commodity inspection and testing company, conducted physical gold audits of
the Trust as of January 31, 2019 and August 2, 2019.
Description of the Shares
General
The Trustee is authorized under the Trust
Agreement to create and issue an unlimited number of Shares. The Trustee will create Shares in Baskets (a Basket equals a block
of 50,000 Shares) only upon the order of an Authorized Participant. The Shares represent units of fractional undivided beneficial
interest in the net assets of the Trust and have no par value. The Trust also may issue Shares to compensate and reimburse the
Sponsor in Shares rather than in cash.
Description of Limited Rights
The Shares do not represent a traditional
investment and you should not view them as similar to “shares” of a corporation operating a business enterprise with
management and a board of directors. As an investor, you will not have the statutory rights normally associated with the ownership
of Shares of a corporation, including, for example, the right to bring “oppression” or “derivative” actions.
All Shares are of the same class with equal rights and privileges. Each share is transferable, is fully paid and non-assessable
and entitles the holder to vote on the limited matters upon which investors may vote under the Trust Agreement. The Shares are
entitled to be redeemed or exchanged for gold as described in this Report. The Shares do not entitle their holders to any conversion
or pre-emptive rights or redemption rights for single Shares.
Redemption of and Taking Delivery of
Physical Gold in Exchange for the Shares
The Shares may be redeemed by or through
an Authorized Participant in Baskets. Investors may also take delivery of physical gold in exchange for their Shares. See “Creations
and Redemption of Shares” for details.
Distributions
If the Trust is terminated and liquidated,
the Trustee will distribute to the investors any amounts remaining after the satisfaction of all outstanding liabilities of the
Trust and the establishment of such reserves for applicable taxes, other governmental charges and contingent or future liabilities
as the Trustee shall determine. Investors of record on the record date fixed by the Trustee for a distribution will be entitled
to receive their pro rata portion of any distribution.
Voting Rights
Under the Trust Agreement, except in limited
circumstances, investors do not have voting rights. However, registered holders of at least 25% of the Shares have the right to
require the Trustee to cure any material breach by it of the Trust Agreement, and registered holders of at least 75% of the Shares
have the right to require the Trustee to terminate the Trust Agreement. In addition, certain amendments to the Trust Agreement
require advance notice to the investors before the effectiveness of such amendments, but no investor vote or approval is required
for any amendment to the Trust Agreement.
Book-Entry Form
Individual certificates will not be issued
for the Shares. Instead, one or more global certificates will be deposited by the Trustee with DTC and registered in the name
of Cede & Co., as nominee for DTC. The global certificates will evidence all of the Shares outstanding at any time. Under
the Trust Agreement, investors may only hold Shares through (1) participants in DTC, such as a bank, broker-dealer or trust company
(“DTC Participants”), (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant
(“Indirect Participants”), and (3) those banks, brokers, dealers, trust companies and others who hold interests in
the Shares through DTC Participants or Indirect Participants. The Shares are only transferable through the book-entry system of
DTC. Investors who are not DTC Participants may transfer their Shares through DTC by instructing the DTC Participant holding their
Shares (or by instructing the Indirect Participant or other entity through which their Shares are held) to transfer the Shares.
Transfers will be made in accordance with standard securities industry practices.
DTC may decide to discontinue providing
its service with respect to Baskets and/or the Shares by giving notice to the Trustee and the Sponsor. Under such circumstances,
the Sponsor will find a replacement for DTC to perform its functions at a comparable cost or, if a replacement is unavailable,
the Trustee will terminate the Trust.
The rights of the investors generally
must be exercised by DTC Participants acting on their behalf in accordance with the rules and procedures of DTC. Because the Shares
can only be held in book-entry form through DTC and DTC Participants, investors must rely on DTC, DTC Participants and any other
financial intermediary through which they hold the Shares to receive the benefits and exercise the rights described in this section.
Investors should consult with their broker or financial institution to find out about procedures and requirements for securities
held in book-entry form through DTC.
United States Federal Income Tax Consequences
This section summarizes the material federal
income tax consequences that generally will apply to the purchase, ownership and disposition of Shares by a “U.S. Investor”
(as defined below) and certain federal tax consequences that may apply to the purchase, ownership and disposition of Shares by
a “non-U.S. Investor” (as defined below). The following discussion represents, insofar as it describes conclusions
regarding federal tax law and subject to the limitations and qualifications described therein, the opinion of K&L Gates LLP,
special federal income tax counsel to the Sponsor. The discussion is based on the Internal Revenue Code of 1986, as amended (the
“Code”), and final and temporary Treasury regulations promulgated thereunder as in effect on the date of this Report
and judicial and administrative interpretations thereof publicly available at that date; no assurance can be given that future
legislation, regulations, court decisions and/or administrative pronouncements will not significantly change applicable law and
materially affect the conclusions expressed herein, and any such change, even though made after an investor has invested in the
Trust, could be applied retroactively. This discussion does not purport to be complete or to deal with all aspects of federal
income taxation that may be relevant to an investor in light of its particular circumstances or to an investor mentioned in the
second sentence of the next paragraph.
The tax treatment of investors may vary
depending on their own particular circumstances. Certain investors - including banks, thrift institutions and certain other financial
institutions, insurance companies, tax-exempt organizations, brokers and dealers in securities or currencies, certain securities
traders, persons holding Shares as a position in a “hedging,” “straddle,” “conversion” or
“constructive sale” transaction (as those terms are defined in the authorities mentioned above), qualified pension
and profit-sharing plans, individual retirement accounts (“IRAs”), certain other tax-deferred accounts, U.S. expatriates,
persons whose “functional currency” is not the U.S. dollar, persons subject to the federal alternative minimum tax,
foreign investors (except as specifically provided under “Income Taxation of Non-U.S. Investors” and “Estate
and Gift Tax Considerations for Non-U.S. Investors” below) and other investors with special circumstances - may be subject
to special rules not discussed below. In addition, the following discussion applies only to investors who will hold Shares as
“capital assets” (as defined in section 1221 of the Code).
The discussion below does not address
the effect of any state, local or foreign tax law on an investor. Purchasers of Shares are urged to consult their own tax advisers
with respect to all federal, state, local and foreign tax law considerations potentially applicable to their investment in Shares.
For purposes of this discussion, a “U.S.
Investor” is an investor who or that is:
●
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An individual who is treated as a citizen or resident of the
United States for federal tax purposes;
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A corporation or partnership (or other entity treated as such
for those purposes) that is created or organized in the United States or under the laws of the United States or any state
thereof or the District of Columbia;
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An estate other than an estate the income of which, from non-U.S.
sources that is not effectively connected with the conduct of a trade or business within the United States, is not includible
in gross income;
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A trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more persons described in any of the three preceding clauses
have the authority to control all substantial decisions of the trust; or
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An eligible trust that has made a valid election under applicable
Treasury regulations to continue to be treated as a domestic trust.
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An investor that is not a U.S. Investor
as so defined is referred to below as a “non-U.S. Investor.” For federal tax purposes, the treatment of any beneficial
owner of an interest in a partnership (including any entity classified as such for those purposes) will generally depend on the
partner’s status and the partnership’s activities. Partnerships and partners should consult their tax advisers about
the federal income tax consequences of purchasing, owning and disposing of Shares.
Taxation of the Trust
The Trust is treated as a “grantor
trust” for federal tax purposes. As a result, the Trust itself is not subject to federal income tax. Instead, the Trust’s
income and expenses “flow through” to its investors, and the Trustee reports the Trust’s income, gains, losses
and deductions to the Internal Revenue Service (“IRS”) on that basis. There can be no assurance that the IRS will
agree with that treatment, and it is possible that the IRS or another tax authority could assert a position contrary thereto and
that a court could sustain that contrary position. Neither the Sponsor nor the Trustee has requested or will request a ruling
from the IRS with respect to the classification or treatment of the Trust for federal tax purposes. If the IRS were to assert
successfully that the Trust is not a “grantor trust,” the Trust would be classified as a partnership for those purposes,
which may affect timing and other tax consequences to its investors.
Taxation of U.S. Investors
An investor in the Trust is treated, for
federal tax purposes, as if it directly owns a pro rata share of the Trust’s assets and directly receives that share
of any Trust income and incurs that share of the Trust’s expenses. In the case of an investor that purchases Shares for
cash, its initial tax basis in its pro rata share of the assets held in the Trust at the time it acquires its Shares will
be equal to its cost of acquiring the Shares. In the case of an investor that acquires its Shares as part of the creation of a
Basket, the delivery of gold to the Trust in exchange for a pro rata share of the underlying gold the Trust holds at the
time it acquires its Shares will not be a taxable event to the investor, and the investor’s tax basis in and holding period
for that share of the Trust’s gold will be the same as its tax basis in and holding period for the gold delivered in exchange
therefor. For purposes of this discussion, and unless stated otherwise, it is assumed that all of an investor’s Shares are
acquired on the same date and at the same price per Share. Investors that hold multiple lots of Shares, or that are contemplating
acquiring multiple lots of Shares, should consult their own tax advisers as to the determination of the tax basis in and holding
period for the underlying gold represented by such Shares.
If the Trust sells gold, for example to
generate cash to pay its fees or expenses, an investor will recognize gain or loss in an amount equal to the difference between
(1) the investor’s pro rata share of the amount the Trust realizes on the sale and (2) the investor’s tax basis
in its pro rata share of the gold that was sold. Although it is not entirely free from doubt, the Trust treats the issuance
of Shares to the Sponsor as payment of the Sponsor’s Fee and/or reimbursement of the Trust’s expenses and/or liabilities
as a taxable exchange by the Trust of the portion of the underlying gold represented by those Shares and thus also constitutes
a taxable event for investors. An investor’s tax basis in its share of any gold sold or exchanged by the Trust generally
is determined by multiplying the investor’s total basis in its share of all the gold held in the Trust immediately prior
to the sale or exchange by a fraction, the numerator of which is the amount of gold sold or exchanged and the denominator of which
is the total amount of all the gold so held. After any such sale or exchange, an investor’s tax basis in its pro rata
share of the gold remaining in the Trust will be equal to its tax basis in its share of the total amount of the gold held
in the Trust immediately prior to the sale or exchange less the portion of that basis allocable to its share of the gold that
was sold or exchanged.
On the sale of some or all of its Shares,
an investor will be treated as having sold the part of its pro rata share of the gold held in the Trust at that time that
is attributable to the Shares sold. Accordingly, the investor generally will recognize gain or loss on the sale in an amount equal
to the difference between (1) the amount realized pursuant to the sale of the Shares and (2) the investor’s tax basis in
that attributable part, as determined in the manner described in the preceding paragraph.
If an investor redeems (which term, and
its variations, as used in this section includes a surrender, and its variations, to the Trust by a Delivery Applicant of) some
or all of its Shares in exchange for (i.e., in order to take delivery of) the underlying gold (including American Gold Eagle gold
coins, with a minimum fineness of 91.67% (“American Gold Coins”)) represented by the redeemed Shares, the exchange
will generally not be a taxable event for the investor (except as noted below with respect to any cash proceeds). In addition,
if an investor acquires its Shares as part of the creation of a Basket by delivering to the Trust gold in specified denominations
(e.g., unallocated gold), the subsequent redemption of its Shares for gold delivered by the Trust in different denominations
(e.g., LBMA gold in denominations of 350 to 430 Fine Ounces or 10 Ounce Bars of gold or coins) will not constitute a taxable
event, provided that the amount of gold received on the redemption contains the equivalent metallic content of the gold delivered
on the creation, less amounts accrued or sold to pay the Trust’s expenses and other charges. An investor’s tax basis
in the gold received on a redemption generally will be the same as the investor’s tax basis in the portion of its pro
rata share of the gold held in the Trust immediately prior to the redemption that is attributable to the redeemed Shares.
An investor’s holding period with respect to the gold received on a redemption should include the period during which the
investor held the redeemed Shares. A subsequent sale of the gold received by the investor will be a taxable event.
If an investor is entitled to any cash
proceeds on the redemption of some or all of its Shares, the investor will be treated as having sold the portion of its pro
rata share of the gold held in the Trust equal in value to the cash proceeds.
An investor’s tax basis in its pro
rata share of the gold held in the Trust immediately after any sale or redemption of less than all of the investor’s
Shares generally will equal (1) its tax basis in its share of the total amount of the gold held in the Trust immediately prior
to the sale or redemption less (2) the portion of such basis that is taken into account in determining the amount of gain or loss
the investor recognizes on the sale or, in the case of a redemption, is treated as the basis in the gold received by the investor
in the redemption.
Maximum 28% Long-Term Capital Gains
Tax Rate for U.S. Investors Who Are Individuals
Gains recognized by an individual, estate
or trust (each referred to below as an “individual” unless the context requires otherwise) from the sale of “collectibles,”
which term includes gold, held for more than one year are subject to federal income tax at a maximum rate of 28% rather than the
lower maximum rates applicable to most other long-term capital gains individuals recognize (a maximum of 15% for a single individual
with taxable income not exceeding $441,450 ($496,600 for married individuals filing jointly) and 20% for individuals with taxable
income exceeding those respective amounts, which apply for 2020 and will be adjusted for inflation annually thereafter). For these
purposes, gain an individual recognizes on the sale of an interest in a “grantor trust” that holds collectibles (such
as the Trust) is treated as gain recognized on the sale of the collectibles, to the extent the gain is attributable to unrealized
appreciation in value of the collectibles. Therefore, any gain recognized by an individual U.S. Investor attributable to a sale
or exchange of Shares held for more than one year, or attributable to the Trust’s sale of any gold that the investor is
treated (through his, her or its ownership of Shares) as having held for more than one year, generally will be subject to federal
income tax at a maximum rate of 28%. The tax rates for capital gains recognized on the sale of assets held by an individual U.S.
Investor for one year or less, or by a taxpayer other than an individual, are generally the same as those at which ordinary income
is taxed.
3.8% Tax on Net Investment Income
An individual is required to pay a 3.8%
tax on the lesser of (1) the excess of the individual’s “modified adjusted gross income” over a threshold amount
($250,000 for married persons filing jointly and $200,000 for single taxpayers) or (2) the individual’s “net investment
income,” which generally includes dividends, interest, and net gains from the disposition of investment property. This tax
is in addition to any other taxes due on that income. U.S. Investors should consult their own tax advisers regarding the effect,
if any, this provision may have on their investment in Shares.
Brokerage Fees and Trust Expenses
Any brokerage or other transaction fee
incurred by an investor in purchasing Shares will be included in the investor’s tax basis in the Trust’s underlying
assets. Similarly, any brokerage fee incurred by an investor in selling Shares will reduce the amount the investor realizes with
respect to the sale.
Investors will be required to recognize
the full amount of gain or loss on a sale of gold by the Trust (as discussed above), even though some or all of the sale proceeds
are used by the Trustee to pay Trust expenses. An investor may deduct its respective pro rata share of each expense incurred
by the Trust to the same extent as if it directly incurred the expense. Investors who are individuals, however, may be required
to treat some or all of the expenses of the Trust as miscellaneous itemized deductions, the deductibility of which was suspended
for taxable years beginning after December 31, 2017, and before January 1, 2026, by the Tax Cuts and Jobs Act enacted in December
2017.
Investment by U.S. Tax-Exempt Investors
Certain U.S. Investors (referred to in
this paragraph as “U.S. Tax-Exempt Investors”) are subject to federal income tax only on their “unrelated business
taxable income” (“UBTI”). It is expected that, unless a U.S. Tax-Exempt Investor incurs debt to purchase Shares,
it should not realize UBTI with respect to its pro rata share of the Trust’s assets.
Investment by Regulated Investment
Companies
Mutual funds and other investment vehicles
that are “regulated investment companies” within the meaning of Code section 851 should consult with their tax advisers
concerning (1) the likelihood that an investment in a Share, although it is a “security” within the meaning of the
1940 Act, may be considered an investment in the underlying gold for purposes of Code section 851(b), and (2) the extent to which
an investment in Shares might nevertheless be consistent with preservation of their qualification under that section.
Investment by Certain Retirement Plans
Section 408(m) of the Code provides that
the purchase of a “collectible” as an investment for 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 IRS 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 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.”
Income Taxation of Non-U.S. Investors
A non-U.S. Investor generally will not
be subject to federal income tax with respect to gain recognized on the sale or other disposition of Shares, or on the sale of
gold by the Trust, unless (1) the non-U.S. Investor is an individual and is present in the United States for 183 days or more
during the taxable year of the sale or other disposition and the gain is treated as being from U.S. sources or (2) the gain is
effectively connected with the conduct by the non-U.S. Investor of a trade or business in the United States and certain other
conditions are met. Non-U.S. Investors are advised to consult their own tax advisers as to the tax consequences, under the laws
of any non-U.S. jurisdiction to which they are subject, of their purchase, holding, sale and redemption of or any other dealing
in Shares and, in particular, as to whether any value added tax, other consumption tax or transfer tax is payable in relation
to such purchase, holding, sale, redemption or other dealing.
Estate and Gift Tax Considerations
for Non-U.S. Investors
Individuals who are neither citizens nor
residents (as determined for federal estate and gift tax purposes) of the United States (collectively, “Non-Residents”)
are subject to estate tax on all property that has a U.S. “situs.” Shares may well be considered to have a U.S. situs
for these purposes. If Shares are so considered, they would be includible in the U.S. gross estate of a Non-Resident investor;
federal estate tax is imposed at rates of up to 40% of the fair market value of the U.S. taxable estate. In addition, the federal
“generation-skipping transfer tax” may apply in certain circumstances. The estate of a Non-Resident investor who was
resident in a country that has an estate tax treaty with the United States may be entitled to benefit from such treaty.
For Non-Residents, the federal gift tax
generally applies only to gifts of tangible personal property or real property having a U.S. situs. Tangible personal property
(including gold) has a U.S. situs if it is physically located in the United States. Although the matter is not settled, it appears
that ownership of Shares might not be considered ownership of the underlying gold for this purpose, even to the extent that gold
is held in custody in the United States. Instead, Shares might be considered intangible property, and therefore they might not
be subject to U.S. gift tax if transferred during the holder’s lifetime.
Non-Resident investors are urged to consult
their tax advisers regarding the possible application of federal estate, gift and generation-skipping transfer taxes in their
particular circumstances.
U.S. Information Reporting and Withholding
The Trustee will make information available
that will enable brokers and custodians through which investors hold Shares to prepare and file certain information returns with
the IRS, and will provide certain tax-related information to investors, in connection with the Trust. To the extent required by
applicable regulations, each investor will be provided with information regarding its allocable portion of the Trust’s annual
income, deductions, gains and losses (if any). A U.S. Investor may be subject to federal backup withholding, at the rate of 24%,
in certain circumstances unless it provides its taxpayer identification number to its broker and complies with certain certification
procedures; the amount of any backup withholding will be allowed as a credit against an investor’s federal income tax liability
and may entitle an investor to a refund, provided that the required information is furnished to the IRS. A non-U.S. Investor may
have to comply with certification procedures to establish that it is not a U.S. Investor, and some non-U.S. Investors will be
required to meet certain information reporting or certification requirements imposed by the Foreign Account Tax Compliance Act,
to avoid withholding.
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.
Item 1A. Risk Factors
Before making an investment decision,
you should consider carefully the risks described below, as well as the other information included in this Report.
The Value of Your Shares is Directly
Related to the Price of Gold
The value of your Shares fluctuates
based upon the price of the gold held by the Trust. Fluctuations in the price of gold could materially adversely affect your investment
in the Shares. This creates the potential for losses, regardless of the period of time that you hold the Shares.
The Shares are intended to track the performance
of the price of gold. The value of the Shares relates directly to the value of the gold owned by the Trust. Therefore, the value
of the Shares will fluctuate with the price of gold. The price of gold has fluctuated widely over the past several years. This
exposes your investment in Shares to potential losses. Several factors may affect the price of gold and, as a result, the value
of the Shares, including the following:
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Global supply and demand, which is influenced by factors including
(1) forward selling by gold producers, (2) purchases made by gold producers to unwind gold hedge positions, (3) central bank
purchases and sales, (4) production and cost levels in major gold-producing countries and (5) new production projects;
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Investors’ expectations regarding future inflation rates;
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Currency exchange rate volatility;
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Interest rate volatility; and
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Unexpected political, economic global or regional incidents.
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Investors should be advised that there
is no assurance that gold will maintain its long-term value in terms of U.S. dollar value 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.
There is No Guarantee that the
High Trading Price of Gold Will be Sustained
The international gold market has experienced
historically high trading prices in recent years. Because there can be no assurance that this historically high trading price
of gold will be sustained, there could be significant decreases in the value of net assets and the NAV of the Trust.
Prices in the international gold market
have reached historically high levels in recent years. The price of physical gold going forward and, in turn, the future value
of net assets of the Trust, may be dependent upon factors that include global gold supply and demand, investors’ inflation
expectations, exchange rate volatility and interest rate volatility. An adverse development with regard to one or more of these,
or other factors may lead to a decrease in gold bullion currency trading prices. A decline in prices of gold would decrease the
value of net assets and the NAV of the Trust.
Discrepancies in the Calculation
of the LBMA PM Gold Price Could Impact the Value of the Trust’s Gold
The Trustee values the gold held by
the Trust based on the LBMA PM Gold Price. Potential discrepancies in the calculation of the LBMA PM Gold Price, as well as any
future changes to the LBMA PM Gold Price, could impact the value of the gold held by the Trust and could have an adverse effect
on the value of an investment in the Shares.
The Trustee values the gold held by the
Trust based on LBMA PM Gold Price, which is 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 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
LBMA AM Gold Price, and 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.
In the event that the LBMA PM Gold Price
does not prove to be an accurate benchmark, and the LBMA PM Gold Price varies materially from the price determined by other mechanisms,
the NAV of the Trust and the value of an investment in the Shares could be adversely impacted. Any future developments in the
benchmark, to the extent they have a material impact on the LBMA PM Gold Price, could adversely impact the NAV of the Trust and
the value of an investment in the Shares. Further, the calculation of the LBMA PM Gold Price is not precise, but rather is based
upon a procedure of matching orders from participants in the auction process and their customers to sell gold with orders from
participants in the auction process and their customers to buy gold at particular prices. As such, the LBMA PM Gold Price does
not necessarily reflect each buyer or seller of gold in the market, nor does it set a definitive price for gold at which all orders
for sale or purchase will take place on that particular day or time. All orders placed into the auction process by the participants
will be executed on the basis of the price determined pursuant to the LBMA PM Gold Price auction process (provided that orders
may be cancelled, increased or decreased while the auction is in progress). It is possible that electronic failures or other unanticipated
events may occur that could result in delays in the announcement of, or the inability of the system to produce, an LBMA PM Gold
Price on any given date. Further, any actual or perceived disruptions that result in the perception that the LBMA PM Gold Price
or LBMA AM Gold Price are vulnerable to actual or attempted manipulation could adversely affect the behavior of investors and
traders, which may have an effect on the price of gold. Any such disruptions in the determination of the LBMA PM Gold Price or
LBMA AM Gold Price may also result in an incorrect valuation of the Trust’s gold and an inaccurate computation of the Sponsor’s
fee, among other potential effects.
The Sponsor may also instruct the Trustee
to use a different publicly available price that the Sponsor determines fairly represents the commercial value of the Trust’s
gold.
Governmental Actions May Affect
the Price of Gold
Future governmental decisions may have
significant impact on the price of gold, which may result in a significant decrease or increase in the value of the net assets
and the NAV of the Trust.
Generally, gold prices reflect the supply
and demand of available gold. Governmental decisions, such as the executive order issued by the President of the United States
in 1933 requiring all persons in the United States to deliver gold to the Federal Reserve or the abandonment of the gold standard
by the United States in 1971, have been viewed as having significant impact on the supply and demand of gold and the price of
gold. Future governmental decisions may have an impact on the price of gold, and may result in a significant decrease or increase
in the value of the net assets and the NAV of the Trust.
Sales of Gold in the Market Could
Adversely Affect the Shares
Substantial sales of gold by central
banks, governmental agencies and multi-lateral institutions could adversely affect an investment in the Shares.
Central banks, other governmental agencies
and multi-lateral institutions buy, sell and hold gold as part of their reserve assets. This market sector holds a significant
amount of gold, some of which is static, meaning that it is held in vaults and is not bought, sold, leased or swapped or otherwise
available in the open market. Several central banks and multi-lateral institutions have sold portions of their gold reserves in
recent years, with the result being that this sector, taken as a whole, has been a net supplier of gold to the open market. In
the event that future economic, political or social conditions or pressures require members of this sector to liquidate their
gold assets all at once or in an uncoordinated manner, the demand for gold may not be sufficient to accommodate the sudden increase
in the supply of gold to the market. Consequently, the price of gold may decline which may adversely affect an investment in the
Shares.
An Investment in the Trust may
be More Volatile than an Investment in a Diversified Portfolio
Because the Trust invests only in gold,
an investment in the Trust may be more volatile than an investment in a more broadly diversified portfolio.
The Trust invests only in gold. As a result,
the Trust’s holding are not diversified. Accordingly, the Trust’s NAV may be more volatile than another investment
vehicle with a more broadly diversified portfolio and may fluctuate substantially over time. The price of gold can be volatile.
Fluctuations in the price of gold are expected to have a direct impact on the value of the Shares.
The Shares May Trade at a Discount
or a Premium
Trust Shares may trade at NAV or at
a price that is above or below NAV. Any discount or premium in the trading price relative to the NAV per Share may widen as a
result of the different trading hours of NYSE Arca and other exchanges.
Trust Shares may trade at, above or below
the NAV per Share. The NAV per Share will fluctuate with changes in the market value of the gold owned by the Trust. The trading
price of the Shares will fluctuate with changes in the NAV per Share as well as market supply and demand. The amount of the discount
or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours between the NYSE
Arca and major gold markets. While the Shares will trade on the NYSE Arca until 4:00 PM (New York time), liquidity in the market
for gold may be reduced after the close of the major world gold markets, including London. As a result, during this time, trading
spreads and the resulting discount or premium on the Shares may widen.
There May Not be an Active Trading
Market for the Shares
The lack of an active trading market
for the Shares may result in losses on your investment at the time of disposition of your Shares.
Although Shares are listed for trading
on NYSE Arca, there can be no assurance that an active trading market for the Shares will develop or be maintained. If an active
public market for the Shares does not develop or continue, the market prices and liquidity of the Shares may be adversely affected.
If you need to sell your Shares at a time when no active market for them exists, the absence of an active market will most likely
adversely affect the price you receive for your Shares (assuming you are able to sell them).
The Trust is Not Actively Managed
The Trust does not actively trade gold
to take advantage of short-term market fluctuations in the price of gold. An investment in the Trust will yield long-term gains
only if the value of gold increases over time.
The Trust does not actively manage the
gold it holds. This means that the Trust does not sell gold at times when its price is high or acquire gold at low prices in the
expectation of future price increases. It also means that the Trust does not make use of any of the hedging techniques available
to professional gold investors to attempt to reduce the risks of losses resulting from price decreases. Any losses sustained by
the Trust will adversely affect the value of your Shares.
The Trust May Suspend Redemptions
of Baskets by Authorized Participants, which Could Affect the Market Price of the Shares
There may be situations where the Trust
suspends redemptions of Baskets by Authorized Participants. To the extent the value of gold declines, these delays may result
in a decrease in the value of the gold received upon redemption by an Authorized Participant, as well as a reduction in liquidity
for all investors in the secondary market.
Although Shares are redeemable by Authorized
Participants in exchange for the underlying amount of gold, redemptions by Authorized Participants may be suspended during any
period while regular trading on NYSE Arca is suspended or restricted, or in which an emergency exists that makes it reasonably
impracticable to deliver, dispose of, or evaluate gold. If any of these events occurs at the time of a redemption by an Authorized
Participant, and the price of gold decreases before the redemption occurs, an Authorized Participant will sustain a loss with
respect to the amount that it would have been able to obtain in exchange for the gold received from the Trust upon the redemption
of its Shares, had the redemption taken place when it was originally intended to occur. As a consequence, Authorized Participants
may reduce their trading in Shares during periods of suspension, decreasing the number of potential buyers of Shares in the secondary
market and the price an investor may receive upon sale.
The Trust May Suspend or Reject
the Surrender of Shares for Physical Gold, which Could Affect the Market Price of the Shares
There may be situations where the Trust
suspends or rejects the surrender of Shares for physical gold. To the extent the value of gold declines, these delays may result
in a decrease in the value of the physical gold received by a Delivery Applicant, as well as a reduction in liquidity for all
investors in the secondary market.
The surrender of Shares for physical gold
may be suspended or rejected by the Trust during any period while regular trading on NYSE Arca is suspended or restricted, in
which an emergency exists that makes it reasonably impracticable to deliver, dispose of, or evaluate gold, or, with respect to
the surrender of Shares by a Delivery Applicant only, as deemed necessary or advisable by the Sponsor. In addition, the Trustee
shall reject the delivery of Shares by the Delivery Applicant: (1) if the number of Shares delivered does not correspond to the
number of Shares specified in the pre-approved Delivery Application; (2) if the delivered Shares are not accompanied by proper
instructions or by a pre-approved Delivery Application; or (3) the number of Fine Ounces represented by the delivered Shares is
less than the Fine Ounces to be delivered specified in the Delivery Application. Additionally, the Sponsor may decline to approve
a Delivery Application for any reason. The delivery of physical gold shall be suspended in the event the Sponsor resigns or is
otherwise unable or unwilling to perform its obligations relating to the process of Delivery Applicants taking delivery of physical
gold. If any of these events occurs at the time that a Delivery Application has been received, and the price of gold decreases
before the Delivery Application is processed, a Delivery Applicant will sustain a loss with respect to the amount of physical
gold that it would have been able to obtain from the Trust in connection with the surrender of the Delivery Applicant’s
Shares had the surrender taken place when it was originally intended to occur. In addition, there may be a reduction in the trading
of Shares during periods of suspension, decreasing the number of potential buyers of Shares in the secondary market and the price
an investor may receive upon sale.
The Withdrawal of an Authorized
Participant and Substantial Redemptions by Authorized Participants May Affect the Liquidity of the Shares
The liquidity of the Shares also may
be affected by substantial redemptions by Authorized Participants related to or independent of the withdrawal from participation
of Authorized Participants.
In the event that there are substantial
redemptions of Shares or one or more Authorized Participants with a substantial interest in the Shares withdraws from participation,
the liquidity of the Shares will likely decrease, which could adversely affect the market price of the Shares and result in your
incurring a loss on your investment.
Competition From Other Methods
of Investing in Gold
An investment in the Shares may be
adversely affected by competition from other methods of investing in gold.
The Trust competes with other financial
vehicles, including traditional debt and equity securities issued by companies in the gold industry and other securities backed
by or linked to gold, direct investments in gold and investment vehicles similar to the Trust. Market and financial conditions,
and other conditions beyond the Sponsor’s control, may make it more attractive to invest in other financial vehicles or
to invest in gold directly, which could limit the market for and reduce the liquidity of the Shares.
Other Investment Vehicles May
Cause a Decline in the Price of Gold
The price of gold may be affected by
the sale of ETVs tracking gold markets, which could negatively affect gold prices and the price and NAV of the Shares.
To the extent existing exchange traded
vehicles (“ETVs”) tracking gold markets represent a significant proportion of demand for gold, large redemptions of
the securities of these ETVs could negatively affect gold prices and the price and NAV of the Shares.
Financial Crises May Result in
a Decline in the Price of Gold
Crises may motivate large-scale sales
of gold which could decrease the price of gold and adversely affect an investment in the Shares.
The possibility of large-scale distress
sales of gold in times of crisis may have a short-term negative impact on the price of gold and adversely affect an investment
in the Shares. For example, the 2008 financial credit crisis resulted in significantly depressed prices of gold largely due to
forced sales and deleveraging from institutional investors such as hedge funds and pension funds. Crises in the future may impair
gold’s price performance which would, in turn, adversely affect an investment in the Shares.
Factors that May Cause a Decline
in the Price of Gold
Several factors may have the effect
of causing a decline in the prices of gold and a corresponding decline in the price of Shares, including:
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A significant increase in gold hedging activity by gold producers.
Should there be an increase in the level of hedge activity of gold producing companies, it could cause a decline in world
gold prices, adversely affecting the price of the Shares.
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A significant change in the attitude of speculators and investors
toward gold. Should the speculative community take a negative view toward gold, it could cause a decline in world gold prices,
negatively impacting the price of the Shares.
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A widening of interest rate differentials between the cost of
money and the cost of gold could negatively affect the price of gold which, in turn, could negatively affect the price of
the Shares.
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A combination of rising money interest rates and a continuation
of the current low cost of borrowing gold could improve the economics of selling gold forward. This could result in an increase
in hedging by gold mining companies and short selling by speculative interests, which would negatively affect the price of
gold. Under such circumstances, the price of the Shares would be similarly affected.
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Loss of or Damage to the Trust’s
Gold
Gold owned by the Trust may be subject
to loss, damage, theft or restriction on access.
There is a risk that part or all of the
Trust’s gold could be lost, damaged or stolen. Access to the Trust’s gold could also be restricted by natural events
(such as an earthquake) or human actions (such as a terrorist attack). Any of these events may adversely affect the operations
of the Trust and, consequently, an investment in the Shares.
The Trust does not insure gold held by
the Custodian or delivered by the precious metals dealer. Consequently, if there is a loss of assets of the Trust through theft,
destruction, fraud or otherwise, the Trust will need to rely on insurance carried by applicable third parties, if any, or on such
third party’s ability to satisfy any claims against it. If the Trust’s gold is lost, damaged, stolen or destroyed
under circumstances rendering a party liable to the Trust, the responsible party may not have the financial resources sufficient
to satisfy the Trust’s claim. For example, as to a particular event of loss, the only source of recovery for the Trust might
be limited to the Custodian, the precious metals dealer or other responsible third parties (e.g., a thief or terrorist),
any of which may not have the financial resources (including liability insurance coverage) to satisfy a valid claim of the Trust.
Moreover, losses due to nuclear accidents, terrorism, riots, acts of God, insurrections, strikes and similar causes beyond the
control of the Custodian and for which the Custodian would not be liable may be sustained by the Trust. Any loss of gold owned
by the Trust will result in a corresponding loss in the NAV, and it is reasonable to expect that such loss will also result in
a decrease in the value at which the Shares are traded on NYSE Arca.
Recovery for Damage to the Trust’s
Gold May Be Limited
In the event the Trust’s gold
is lost, damaged, stolen or destroyed, recovery may be limited to the market value of the gold at the time the loss is discovered,
which may negatively affect the value of net assets of the Trust.
If there is a loss due to theft, loss,
damage, destruction or fraud or otherwise with respect to the Trust’s gold held by the Custodian or delivered by the precious
metals dealer, and such loss is found to be the fault of the Custodian or the precious metals dealer, the Trust may not be able
to recover more than the market value of the gold at the time the loss is discovered. If the market value of gold increases between
the time the loss is discovered and the time the Trust receives payment for its loss and purchases gold to replace the losses,
less gold will be acquired by the Trust and the value of the net assets of the Trust will be negatively affected.
The Trust’s Service Providers
May Not Carry Adequate Insurance
The service providers engaged by the
Trust may not carry adequate insurance to cover claims against them by the Trust, which could adversely affect the value of net
assets of the Trust.
The Trustee, the Custodian, precious metals
dealers and other service providers engaged by the Trust maintain such insurance as they deem adequate with respect to their respective
businesses. Investors cannot be assured that any of the aforementioned parties will maintain any insurance with respect to the
Trust’s assets held or the services that such parties provide to the Trust and, if they maintain insurance, that such insurance
is sufficient to satisfy any losses incurred by them in respect of their relationship with the Trust.
Accordingly, the Trust will have to rely
on the efforts of the service provider to recover from their insurer compensation for any losses incurred by the Trust in connection
with such arrangements.
Operational Problems May Cause
a Decline in the Trading Price of the Shares
The value of the Shares could decline
if unanticipated operational or trading problems arise.
There may be unanticipated problems or
issues with respect to the mechanics of the Trust’s operations and the trading of the Shares that could have a material
adverse effect on an investment in the Shares. In addition, to the extent that unanticipated operational or trading problems or
issues arise, the Sponsor’s past experience and qualifications may not be suitable for solving these problems or issues.
Shareholders May Terminate the
Trust
Shareholders with large holdings may
choose to terminate the Trust.
Under the Trust Agreement, registered
holders of at least 75% of the Shares have the right to require the Trustee to terminate the Trust Agreement. This power may be
exercised by a relatively small number of holders of Shares. Upon any such exercise, investors who would have elected to continue
to invest in gold through ownership of Shares will be compelled to find another vehicle for such investment and may not be able
to identify another vehicle that offers the same features as the Trust.
A Share Submission is Irrevocable
An investor’s instruction to
a broker-dealer to transfer Shares to the Trust in a Share Submission cannot be changed.
A Delivery Applicant wishing to deliver
Shares of the Trust in exchange for physical gold must submit to the Sponsor a Delivery Application and the processing fees through
its broker-dealer. The Delivery Application is not binding until Shares are delivered to the Trust. Upon pre-approval of the Delivery
Application by the Sponsor, the Sponsor will send a copy of the pre-approved Delivery Application to the Trustee. A Delivery Applicant
shall instruct its broker-dealer to transfer Shares to the Trustee; the submission and transfer by the broker-dealer will be a
binding and irrevocable Share Submission in accordance with the details specified on the pre-approved Delivery Application. Once
the Trustee has received a Delivery Applicant’s Share Submission and, if the Delivery Applicant has requested physical gold
other than London Bars, once the Trustee has received a confirmation certified by the Sponsor that an over-the-counter transaction
between the Sponsor and the precious metals dealer has been entered into providing for the exchange of physical gold held by the
Trust for physical gold specified by the Delivery Applicant, physical gold will be selected or acquired by the Custodian or the
precious metals dealer and then released from the Trust for delivery to the Delivery Applicant according with the instructions
in the Delivery Application. Once the Shares have been submitted, a Share Submission may no longer be revoked by the Delivery
Applicant under any circumstances, though the Share Submission may be rejected by the Trustee or the Sponsor under certain circumstances.
Delivery of Physical Gold to
Delivery Applicants May Take Considerable Time
The Custodian or a precious metals
dealer will deliver physical gold to Delivery Applicants in exchange for their Shares. A delay in the delivery of physical gold
to Delivery Applicants could result in losses if the price of gold declines.
The Custodian or a precious metals dealer
will arrange for the delivery of physical gold to Delivery Applicants in exchange for their Shares. After a Delivery Applicant
irrevocably submits Shares to exchange for physical gold, either the Trustee will instruct the Custodian to deliver physical gold
to the Delivery Applicant or, if the Delivery Applicant requests physical gold other than London Bars, the Sponsor will enter
into an over-the-counter transaction on the business day following the Share Submission Day with a precious metals dealer to exchange
physical gold the Trust holds for physical gold specified by the Delivery Applicant. Because delivery time depends on many factors,
including the types of physical gold requested and the delivery method chosen, considerable time may elapse by the time Delivery
Applicants receive their physical gold. Further, because shipments of physical gold may be broken down into multiple smaller shipments,
it may take additional time for the Delivery Applicant to receive all of the requested physical gold. A delay in the delivery
of physical gold to Delivery Applicants could result in losses if the price of gold declines.
Suspension or Rejection of the Surrender of Shares
If the Trust suspends or rejects a
surrender of Shares for gold, a Shareholder may have no alternative but to sell Shares on the open market and thus incur brokerage
costs and be subject to potential tax consequences.
If the Trust suspends the surrender of
Shares or rejects the delivery of Shares under a Delivery Application, a Shareholder who wishes to redeem Shares may have no alternative
but to sell Shares on the open market. Such a sale of Shares will involve brokerage costs and may result in tax consequences to
the Shareholder.
The Creation and Redemption Process
May Result in a Decline in the Price of Shares
If the process of creation and redemption
of Baskets encounters any unanticipated difficulties, the possibility for arbitrage transactions intended to keep the price of
the Shares closely linked to the price of gold may not exist, and as a result, the price of the Shares may fall.
If the processes of the creation and redemption
of Shares by Authorized Participants (which depend on timely transfers of gold to and by the Custodian) encounter any unanticipated
difficulties, potential market participants who would otherwise be willing to purchase or redeem Baskets to take advantage of
any arbitrage opportunity arising from discrepancies between the price of the Shares and the price of the underlying gold may
not take the risk that, as a result of those difficulties, they may not be able to realize the profit they expect. If this is
the case, the liquidity of the Shares may decline and the price of the Shares may fluctuate independently of the price of gold
and may fall.
A Delivery Applicant Bears the
Risk of Loss in Connection with the Delivery of Physical Gold
A Delivery Applicant that suffers loss
of, or damage to, its physical gold during delivery will not be able to claim damages from the Trust, the Trustee, the Custodian,
the precious metals dealer from which physical gold was obtained or the Sponsor.
Upon the release of physical gold from
the Trust for forwarding to the Delivery Applicant, the Delivery Applicant’s physical gold will be transported by either
a conventional shipping carrier such as the U.S. Postal Service, Federal Express or United Parcel Service, or an armored transportation
service engaged by or on behalf of the investor (a “Delivery Service Provider”). Because ownership of physical gold
will transfer to the Delivery Applicant at the time the Custodian or the precious metals dealer from which they were obtained
surrenders physical gold to the Delivery Service Provider, the Delivery Applicant will bear the risk of loss from the time the
Delivery Service Provider assumes possession of physical gold on the Delivery Applicant’s behalf. In the event of any loss
or damage in connection with the delivery of physical gold after such time, the Delivery Applicant will have no claim against
the Trust, the Trustee, the Custodian, such precious metals dealer or the Sponsor but may have a claim against the Delivery Service
Provider.
In addition, upon receipt of physical
gold, the Delivery Applicant will have five business days, or such shorter or longer period as may be specified in the Delivery
Application from time to time, following the receipt of the physical gold to notify the Sponsor in writing of any complaints or
objections concerning the shipment, delivery or receipt of the physical gold. In the absence of any such objection or complaint,
the Delivery Applicant will be deemed to have accepted receipt of the physical gold in full satisfaction of the physical gold
due the Delivery Applicant and to have waived any and all claims the Delivery Applicant may have concerning the physical gold
received by the Delivery Applicant.
Risks of Transactions with Precious
Metals Dealers
Counterparty risks associated with
the Trust’s transactions with precious metals dealers to exchange the Trust’s gold for physical gold of different
specifications may expose the Trust to potential quantity and quality deficiencies and to situations where the Trust is not be
able to exchange gold for physical gold.
If a Delivery Applicant requests physical
gold in a form other than London Bars, the Trust will enter into an over-the-counter transaction with a precious metals dealer
pursuant to which the type of physical gold requested by a Delivery Applicant will be acquired by the Trust from the precious
metals dealer and the precious metals dealer will be instructed to deliver the requested physical gold to the Delivery Applicant.
However, there is no assurance that physical gold acquired by the Trust from the precious metals dealer will meet the quantity
and quality requirements of the requested over-the-counter transaction. The precious metals dealer is responsible to the Trust
for any deficiency in the amount or quality of physical gold under a Transaction and Shipping Agreement between the Sponsor and
the precious metals dealer. In addition, the Trust may enter into exchange transactions with only one or a limited number of precious
metals dealers, which may increase the Trust’s exposure to counterparty risk. Further, there is a risk that no suitable
precious metals dealers will be willing to enter into, or continue to enter into, transactions with the Trust, and as a result,
the Trust may not be able to exchange London Bars for physical gold of different specifications.
Default of a Precious Metals
Dealer
The Trust will bear the risk of loss
of the amount expected to be received in an exchange of gold in the event of the default or bankruptcy of a precious metals dealer.
Although the Sponsor is responsible for
selecting the precious metals dealer and ensuring the agreement by which the precious metals dealer is engaged includes appropriate
representations, warranties and covenants of the precious metals dealer regarding completion of the over-the-counter transactions
by which the Trust’s gold is exchanged for the physical gold requested by the Delivery Applicant, the Sponsor is not responsible
for the default or misconduct of the precious metals dealer, provided the Sponsor exercises reasonable care in selecting the precious
metals dealer. Under the terms of the Sponsor’s engagement of the precious metals dealer, the precious metals dealer is
responsible to the Trust for any deficiency in the amount or quality of physical gold it is to provide to the Trust. Accordingly,
the Trust will bear the risk in connection with any loss resulting from the insolvency or any misconduct of a precious metals
dealer. Physical gold that is to be exchanged for different specifications to meet delivery requests from Delivery Applicants
will be converted into unallocated gold and deposited into the precious metals dealer’s unallocated gold account with the
Custodian and, until the time that the physical gold to be delivered to a Delivery Applicant is surrendered to the Delivery Service
Provider, the Trust may bear some risk of loss to such physical gold held on the Trust’s behalf. During those times, the
Trust will have no proprietary rights to any specific bars of gold held by the precious metals dealer, may not have possession
of the physical gold held on its behalf by the precious metals dealer and will be an unsecured creditor of a precious metals dealer.
In the event the precious metals dealer becomes insolvent or a claim of misconduct is made against the precious metals dealer,
the precious metals dealer’s assets might not be adequate to satisfy a claim by the Trust.
A Failure by a Precious Metals
Dealer to Exercise Due Care with Respect to the Trust’s Gold Could Result in a Loss to the Trust
For deliveries of gold other than London
Bars to Delivery Applicants, the Trust will rely on a precious metals dealer to exchange the Trust’s gold for American Gold
Eagle Coins or another form of physical gold and to deliver physical gold to the Delivery Applicant pursuant to the Delivery Application.
As a result, a failure by the precious metals dealer to exercise due care in the exchange and delivery of the Trust’s gold
could result in a loss to the Trust.
The Trust will be reliant on a precious
metals dealer to exchange the Trust’s gold to American Gold Eagle Coins or another form of physical gold in the amount and
of the quality specified by the Sponsor in each over-the-counter transaction, and certified by the Sponsor to the Trustee in a
confirmation thereof, and to deliver physical gold to the Delivery Applicant pursuant to the instructions in the Delivery Application.
Under the Transaction and Shipping Agreement, the precious metals dealer is responsible to the Trust for any deficiency in the
amount or quality of physical gold. Although the Transaction and Shipping Agreement requires the precious metals dealer to maintain
insurance to protect the Trust in the event of a loss associated with physical gold, the Trust has no input regarding the amount,
validity or adequacy of such insurance. Any failure by the precious metals dealer to exercise due care with respect to the exchange
and delivery of physical gold may not be detectable or controllable by the Sponsor or the Trustee and, assuming the Delivery Applicant
seeks recourse against the Trust, could result in a loss to the Trust.
The Trust’s Ability to
Recover Losses from a Precious Metals Dealer may be Limited
The limited liability of a precious
metals dealer under the Transaction and Shipping Agreement with the Sponsor and New York State law may impair the ability of the
Trust to recover losses concerning its gold and any recovery may be limited, even in the event of fraud, to the market value of
the gold at the time the fraud is discovered.
The liability of the precious metals dealer
is limited under the Transaction and Shipping Agreement. Under the Transaction and Shipping Agreement, the precious metals dealer
shall exercise the same degree of care and diligence in safeguarding the Trust’s gold as any reasonably prudent person acting
as a custodian would exercise in the same circumstances and is liable for losses associated with the failure of physical gold
to be in the amount and of the quality specified by the Sponsor in an over-the-counter transaction and for physical loss or destruction
of gold that results from fraud, theft, negligence or otherwise and regardless of culpability of the precious metals dealer. However,
any such liability is limited to the market value of physical gold held by the precious metals dealer at the time such negligence,
fraud or willful default is discovered and is subject to the precious metals dealer honoring its contractual obligations.
Physical Gold May not be Available
in the Requested Sizes
There is no guarantee that physical
gold will be available in specified sizes, which may result in a Delivery Applicant paying higher or lower Processing fees.
The Trust holds London Bars. To facilitate
a Delivery Applicant’s ability to exchange Shares for physical gold, the Sponsor will engage in an over-the-counter transaction
with a precious metals dealer to exchange the Trust’s London Bars for physical gold of different specifications. There is
no guarantee that at the time that the Sponsor seeks to exchange the Trust’s London Bars for physical gold of different
specifications such physical gold will be available. As a result, it may be necessary for a Delivery Applicant to wait for such
physical gold to be available. If the precious metals dealer advises the Sponsor that the desired physical gold is not available,
the Sponsor will advise the Delivery Applicant. At that time, the Sponsor may offer the Delivery Applicant physical gold that
is different from the physical gold specified in the Delivery Application that comprises the same Fine Ounce content. If the Delivery
Applicant accepts different physical gold than that specified in the Delivery Application, a new Delivery Application would need
to be completed and it may result in higher or lower processing fees. However, it is unlikely that the cash proceeds (i.e., the
difference between the value of a Delivery Applicant’s Shares and the value of physical gold to be delivered to the Delivery
Applicant) will change because the total Fine Ounce component of the physical gold will not change unless otherwise agreed to
by the Delivery Applicant. During times of high demand for coins in the market, Processing Fees may be updated frequently and
may be updated after the time a Delivery Applicant submits an application before it is pre-approved; in this case, the Delivery
Applicant may have to pay a higher Processing Fee to have the Delivery Application pre-approved.
Physical Gold Delivered upon
Taking Delivery in Exchange for Shares May Need to be Re-Assayed
If a Delivery Applicant requests that
physical gold be delivered to a destination that is outside the “chain of integrity,” the physical gold may need to
be re-assayed, which could result in additional costs for the Delivery Applicant and potential delays in assaying the physical
gold.
The Trust’s London Bars are generally
accepted by institutional gold dealers without assaying because such London Bars are produced according to strict LBMA specifications
and regularly audited to ensure that specifications meet those stated. When traded exclusively among certain institutional gold
dealers, London Bars are considered to remain within the “chain of integrity.” By remaining in the chain of integrity,
London Bars have historically been available at the lowest transaction costs of any gold bullion because assay costs are minimized.
However, a London Bar that leaves the chain of integrity may need to be re-assayed. In addition to the costs associated with assaying,
there may be significant delays in assaying gold, especially during times when gold may be in high demand, due to potential backlogs.
If, upon exchanging Shares for physical
gold, a Delivery Applicant requests that the physical gold be delivered from the Custodian to another bank or a vault in the business
of holding physical gold for institutional investors, the physical gold may continue to be accepted for trading without being
re-assayed while in the custody of that institution.
If a Delivery Applicant instructs that
London Bars be delivered to a destination other than an institutional gold dealer, the London Bars delivered to the Delivery Applicant
may no longer be deemed part of the chain of integrity. This may make a future sale of such gold more difficult and expensive.
In addition, the value of any London Bars that have left the chain of integrity are likely to be at a discount from the spot price
of gold.
Physical gold other than London Bars also
may need to be re-assayed should they leave the Custodian. One and 10 Ounce Bars may be accepted by some dealers without re-assaying
should the bars appear in excellent condition and/or remain in the mint’s original packaging. However, Delivery Applicants
should be aware that dealers may charge a fee to re-assay any bar for any reason.
Limited Investor Rights
As an investor, you will not have the
rights normally associated with ownership of Shares of other types of investment vehicles. For example, you will have extremely
limited voting rights in comparison to those of shareholders in traditional operating companies.
The Trust is a passive investment vehicle
with no management and no board of directors. Thus, the Shares are not entitled to the same rights as Shares issued by a corporation
operating a business enterprise with management and a board of directors. By acquiring Shares, you are not acquiring the right
to elect directors, to vote on certain matters regarding the issuer of your Shares or to take other actions normally associated
with the ownership of Shares, such as the right to bring “oppression” or “derivative” actions. You will
only have the extremely limited rights described under “Description of the Shares.”
Absence of 1940 Act and Commodity
Exchange Act Protections
Investors will not have the protections
normally associated with ownership of Shares in an investment company registered under the 1940 Act or the protections afforded
by the Commodity Exchange Act.
The Trust is not registered as an investment
company under the 1940 Act and is not required to register thereunder. Consequently, investors do not have the regulatory protections
provided to investors in investment companies. The Trust will not hold or trade in commodity futures contracts regulated by the
Commodity Exchange Act, as administered by the CFTC. Furthermore, the Trust is not a commodity pool for purposes of the Commodity
Exchange Act, and the Sponsor is not subject to regulation by the CFTC as a commodity pool operator, or a commodity trading advisor,
in connection with the Shares. Therefore, investors will not have the regulatory protections provided to investors in instruments
or commodity pools regulated by the Commodity Exchange Act.
Termination and Liquidation May
Be Required
The Trust may be required to terminate
and liquidate at a time that is disadvantageous to investors.
If the Trust is required to terminate
and liquidate, such termination and liquidation could occur at a time that is disadvantageous to investors, such as when gold
prices are lower than the gold prices at the time when investors purchased their Shares. In such a case, the Trust’s gold
may be sold as part of the Trust’s liquidation and the resulting proceeds distributed to investors will be less than if
gold prices were higher at the time of the sale.
The Trust’s Ability to
Recover Losses from the Custodian is Limited
The limited liability of the Custodian
under the agreement with the Trust and U.K. law may impair the ability of the Trust to recover losses concerning its gold and
any recovery may be limited, even in the event of fraud, to the market value of the gold at the time the fraud is discovered.
The liability of the Custodian is limited
under the Custody Agreement. Under the agreements between the Trustee and the Custodian that establishes the Trust Unallocated
Account and the Trust Allocated Account, the Custodian is liable only for losses that are the direct result of its own negligence,
fraud or willful default in the performance of its duties. Any such liability is further limited to the market value of the gold
held in the Trust Allocated Account and the Trust Unallocated Account at the time such negligence, fraud or willful default is
discovered by the Custodian or notified to the Custodian by the Trustee. In addition, under an unallocated account agreement between
the Authorized Participant and the Custodian or, if the Authorized Participant uses another custodian, that custodian, the Custodian
or the Authorized Participant’s custodian may not be contractually or otherwise liable for any losses suffered by any Authorized
Participant or investor. Moreover, the terms of the Authorized Participant’s unallocated account agreement may have other
terms that may limit the recovery of the Authorized Participant’s losses from the Custodian or the Authorized Participant’s
custodian.
It May Be Difficult for the Trust
to Seek Legal Redress Against the Custodian
Although the relationship between the
Custodian and the Trustee concerning the Trust’s allocated gold is expressly governed by U.K. law, a court hearing any legal
dispute concerning that arrangement may disregard that choice of law and apply U.S. law, in which case the ability of the Trust
to seek legal redress against the Custodian may be frustrated.
The obligations of the Custodian under
the Custody Agreement are governed by U.K. law. The Trust is a New York common law trust. Any United States, New York or other
court situated in the United States may have difficulty interpreting U.K. law (which, insofar as it relates to custody arrangements,
is largely derived from court rulings rather than statute), LBMA rules or the customs and practices in the London custody market.
It may be difficult or impossible for the Trust to sue the Custodian in a United States, New York or other court situated in the
United States. In addition, it may be difficult, time consuming and/or expensive for the Trust to enforce in a foreign court a
judgment rendered by a United States, New York or other court situated in the United States.
Investors Do Not have the Right
to Assert a Claim Against the Custodian
Investors and Authorized Participants
lack the right under the Custody Agreement to assert claims directly against the Custodian, which significantly limits their options
for recourse.
Neither the investors nor any Authorized
Participant will have a right under the Custody Agreement to assert a claim of the Trustee against the Custodian. Claims under
the Custody Agreement may only be asserted by the Trustee on behalf of the Trust.
A Failure by the Custodian to
Exercise Due Care with Respect to Gold Could Result in a Loss to the Trust
The Trust will rely on the Custodian
for the safekeeping of essentially all of the Trust’s gold. As a result, failure by the Custodian to exercise due care in
the safekeeping of the Trust’s gold could result in a loss to the Trust.
The Trust will be reliant on the Custodian
for the safekeeping of essentially all of the Trust’s gold. The Trustee is not liable for the acts or omissions of the Custodian.
The Trustee has no obligation to monitor the activities of the Custodian other than to receive and review reports prepared by
the Custodian pursuant to the Custody Agreement. In addition, the ability to monitor the performance of the Custodian may be limited
because under the Custody Agreement the Trustee and the Sponsor and any accountants or other inspectors selected by the Sponsor
have only limited rights to visit the premises of the Custodian for the purpose of examining the Trust’s gold and certain
related records maintained by the Custodian. As a result of the above, any failure by the Custodian to exercise due care in the
safekeeping of the Trust’s gold may not be detectable or controllable by the Trustee and could result in a loss to the Trust.
The Trust Would Be An Unsecured
Creditor of the Custodian in the Event of Insolvency
Gold held in the Trust Unallocated
Account and any Authorized Participant’s unallocated account will not be segregated from the Custodian’s assets. If
the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant.
Gold which is part of a deposit for a
purchase order or part of a redemption distribution will be held for a time in the Trust Unallocated Account and, previously or
after, in the unallocated gold account of the purchasing Authorized Participant. During those times, the Trust and the Authorized
Participant, as the case may be, will have no proprietary rights to any specific bars of gold held by the Custodian and will each
be an unsecured creditor of the Custodian with respect to the amount of gold held in such unallocated accounts. In addition, if
the Custodian fails to segregate gold held by it on behalf of the Trust, unallocated gold will not be segregated from the Custodian’s
assets, and the Trust will be an unsecured creditor of the Custodian with respect to the amount so held in the event of the insolvency
of the Custodian. In the event the Custodian becomes insolvent, the Custodian’s assets might not be adequate to satisfy
a claim by the Trust or the Authorized Participant for the amount of gold held in their respective unallocated gold accounts.
Baskets May Be Issued for More
or Less Gold than Required
In issuing Baskets, the Trustee will
rely on certain information received from the Custodian which is subject to confirmation after the Trustee has relied on the information.
If such information turns out to be incorrect, Baskets may be issued in exchange for an amount of gold that is more or less than
the amount of gold required to be deposited with the Trust.
The Custodian’s definitive records
are prepared after the close of its business day. However, when issuing Baskets, the Trustee will rely on information reporting
the amount of gold credited to the Trust’s accounts that it receives from the Custodian during the business day and which
is subject to correction during the preparation of the Custodian’s definitive records after the close of business. If the
information relied upon by the Trustee is incorrect, the amount of gold actually received by the Trust may be more or less than
the amount required to be deposited for the issuance of Baskets.
Physical Gold Allocated to the
Trust May Not Meet the Standards of a London Bar
Physical gold allocated to the Trust
in connection with the creation of a Basket may not meet the standards of a London Bar and, if a Basket is issued against such
gold, the Trust may suffer a loss.
Neither the Trustee nor the Custodian
independently confirms the fineness of the gold allocated to the Trust in connection with the creation of a Basket. The physical
gold allocated to the Trust by the Custodian may be different from the reported fineness or weight required by the LBMA’s
standards for gold bars delivered in settlement of a gold trade (i.e., London Bars), the standards required by the Trust. If the
Trustee nevertheless issues a Basket against such gold, and if the Custodian fails to credit the Trust the amount of any deficiency,
the Trust may suffer a loss.
Value of Gold in Trust Is Limited
to the Value of the Fine Ounce Content of Gold
Because gold in the Trust is valued
at the price of gold independent of location and type of gold, the value of gold in the Trust is limited to the price of gold
multiplied by the Fine Ounce content of the gold.
Gold in the Trust is valued at the price
of gold independent of location and type of gold. The price of gold commonly quoted refers to the price of a London Bar in London.
Any gold that is not a London Bar located in London may obtain a bid price when offered for sale that deviates from the price
of gold. Nonetheless, the Trust values all gold at the price of gold because the Sponsor assumes the cost of conversion of gold.
Conversely, in the unlikely event that such a conversion yields a profit, the Sponsor, not the Trust, will keep such profit. As
a result, the value of gold in the Trust is limited to the price of gold multiplied by the Fine Ounce content of the gold.
Similarly, when investors exchange their
Shares for physical gold other than London Bars, the Shares also are valued at the price of gold for purposes of calculating their
Share in the Trust. The Sponsor may recover this conversion cost as part of the Exchange Fee.
Payment of the Sponsor’s
Fee in Shares and the Sale of Gold by the Trust May Cause a Decline in the Value of the Shares
The amount of gold represented by each
Share will decrease when the Sponsor’s Fee is paid in Shares and when the Trustee sells the Trust’s gold to pay Trust
expenses. Without increases in the price of gold sufficient to compensate for that decrease, the price of the Shares will also
decline and you will lose money on your investment in Shares.
Although the Sponsor has agreed to assume
all organizational and certain ordinary administrative and marketing expenses incurred by the Trust, not all Trust expenses will
be assumed by the Sponsor. For example, most taxes and other governmental charges that may be imposed on the Trust’s property
will not be paid by the Sponsor. As part of its agreement to assume some of the Trust’s ordinary administrative expenses,
the Sponsor has agreed to pay legal fees and expenses of the Trust not in excess of $100,000 per annum. Any legal fees and expenses
in excess of that amount will be the responsibility of the Trust.
The Sponsor intends to accept Shares of
the Trust for the Sponsor’s Fee and reimbursement of expenses not assumed by the Sponsor. However, the Trust may be subject
to certain other liabilities (for example, as a result of litigation) which have not been assumed by the Sponsor. The Trust will
sell gold to pay those expenses, unless the Sponsor agrees to pay such expenses out of its own pocket and receive reimbursement
from the Trust in the form of Shares.
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. A
decrease in the amount of gold represented by each Share results in a decrease in the price of a Share even if the price of gold
has not changed. To retain the Share’s original price, the price of gold would have to increase. Without that increase,
the lesser amount of gold represented by the Share will have a correspondingly lower price. If these increases do not occur, or
are not sufficient to counter the lesser amount of gold represented by each Share, you will sustain losses on your investment
in Shares. For example, assuming the Trust has not incurred fees or expenses in excess of the amount the Sponsor has agreed to
bear and the Shares trade at the same price as the Trust’s NAV, the price of the gold represented by your Shares would need
to increase by the amount of the Sponsor’s Fee between the date of your purchase and one year later so that your Shares
would have the same value on both dates, not including any transaction costs you may incur to purchase your Shares. The Sponsor’s
Fee is currently 0.40% of the NAV of the Trust. The value of your investment also may decline if the price of the Shares is negatively
affected by the Sponsor’s sale in the open market of the Shares that the Sponsor has received from the Trust as payment
of the Sponsor’s Fee.
Any Indemnification that the
Trust is Required to Pay May Adversely Affect the Value of the Shares
The value of the Shares will be adversely
affected if the Trust is required to indemnify the Sponsor, the Trustee or the Custodian as contemplated in the Trust Agreement
and the Custody Agreement.
Under the Trust Agreement, each of the
Sponsor and the Trustee has a right to be indemnified from the Trust for any liability or expense it incurs without gross negligence,
bad faith or willful misconduct on its part. Similarly, the Custody Agreement provides for indemnification of the Custodian by
the Trust under certain circumstances. That means that it may be necessary to sell assets of the Trust to cover losses or liability
suffered by the Sponsor, the Trustee or the Custodian. Any sale of that kind would reduce the NAV of the Trust and the value of
the Shares.
Uncertainty regarding the effects
of Brexit
The price of the Shares could be adversely
affected by the effects of Brexit.
The United Kingdom (“UK”)
stopped being a member of the European Union (“EU”) (“Brexit”) on January 31, 2020 (“Exit Day”).
Following Exit Day, the EU entered an 11-month transitional period to December 31, 2020 (the “Transitional Period”)
during which existing EU-derived laws and regulations and trading relationships continue to apply in the UK while the parties
decide what their future relationship will look like. The unavoidable uncertainties and events related to Brexit could negatively
affect taxes and costs of business; cause volatility in currency exchange rates, interest rates, and European, UK or worldwide
political, regulatory, economic or market conditions; and contribute to instability in political institutions, regulatory agencies,
and financial markets. Brexit could also lead to legal uncertainty and politically divergent national laws and regulations as
a new relationship between the UK and EU is defined and the UK determines which EU laws to replace or replicate. Any of these
effects of Brexit, and others that cannot be anticipated, could adversely affect the price of the Shares.
Uncertainty regarding the effects
of COVID-19
The price of the Shares could be adversely
affected by the effects of COVID-19
In December 2019, a novel strain of coronavirus,
COVID-19, was reported to have surfaced in Wuhan, Hubei Province, China. In January 2020, this coronavirus spread to other countries,
including the United States and Europe. The World Health Organization has classified the outbreak as a pandemic as it continues
to spread. Efforts to contain the spread of this coronavirus has intensified. To date, this coronavirus has not had a significant
impact on our business. Although we currently expect that any disruptive impact of coronavirus on our business will be temporary,
this situation continues to evolve and therefore we cannot predict the extent to which the coronavirus will directly or indirectly
affect the price of the Shares. There were some signs of increased demand for physical gold in March 2020 and as a result the
precious metals dealer increased coin and bar premiums; the Sponsor has updated available coins and Processing Fees on merkgold.com/fees
as information has become available.
Information system disruptions
could adversely affect the Trust’s record keeping and operations
The Trust relies on the information
and technology systems of the Trustee, the Custodian, the Marketing Agent and, to a lesser degree, the Sponsor, which could be
adversely affected by information systems interruptions, cybersecurity attacks or other disruptions which could have a material
adverse effect on our record keeping and operations.
The Custodian, the Trustee and the Trust’s
marketing agent, Van Eck Securities Corporation (“VanEck” or “Marketing Agent”), depend upon information
technology infrastructure, including network, hardware and software systems to conduct their business as it relates to the Trust.
A cybersecurity incident, or a failure to protect their computer systems, networks and information against cybersecurity threats,
could result in a loss of information and adversely impact their ability to conduct their business, including their business on
behalf of the Trust. Despite implementation of network and other cybersecurity measures, their security measures may not be adequate
to protect against all cybersecurity threats.