Item
1. Financial Statements (Unaudited)
VanEck
Merk Gold Trust
Statements
of Assets and Liabilities
|
|
April 30,
2020
|
|
|
January 31,
2020
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Investments in gold bullion (cost $198,290,461 and $159,340,051, respectively)
|
|
$
|
253,914,695
|
|
|
$
|
198,479,752
|
|
Total assets
|
|
|
253,914,695
|
|
|
|
198,479,752
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Sponsor’s fee payable
|
|
|
2
|
|
|
|
9
|
|
Total liabilities
|
|
|
2
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
253,914,693
|
|
|
$
|
198,479,743
|
|
|
|
|
|
|
|
|
|
|
Net assets consists of:
|
|
|
|
|
|
|
|
|
Paid-in-capital
|
|
$
|
204,186,858
|
|
|
$
|
165,051,803
|
|
Accumulated earnings
|
|
|
49,727,835
|
|
|
|
33,427,940
|
|
|
|
$
|
253,914,693
|
|
|
$
|
198,479,743
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding (no par value)
|
|
|
15,271,116
|
|
|
|
12,817,945
|
|
Net asset value per share
|
|
$
|
16.63
|
|
|
$
|
15.48
|
|
See
notes to unaudited financial statements.
VanEck
Merk Gold Trust
Statements
of Operations
|
|
For the Three Months Ended
April 30,
2020
|
|
|
For the Three Months Ended
April 30,
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Expenses
|
|
|
|
|
|
|
Sponsor’s fees
|
|
$
|
215,094
|
|
|
$
|
147,619
|
|
Total expenses
|
|
|
215,094
|
|
|
|
147,619
|
|
Net investment loss
|
|
|
(215,094
|
)
|
|
|
(147,619
|
)
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
|
|
|
Net realized gain from gold bullion distributed for redemptions
|
|
|
30,456
|
|
|
|
96,601
|
|
Net change in unrealized appreciation (depreciation) on investment in gold bullion
|
|
|
16,484,533
|
|
|
|
(4,908,946
|
)
|
Net realized and unrealized gain (loss) from operations
|
|
|
16,514,989
|
|
|
|
(4,812,345
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
16,299,895
|
|
|
$
|
(4,959,964
|
)
|
See
notes to unaudited financial statements.
VanEck
Merk Gold Trust
Statements
of Changes in Net Assets
|
|
For the
Three Months Ended
April 30,
2020
|
|
|
For the
Three Months Ended
April 30,
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Net assets, beginning of period
|
|
$
|
198,479,743
|
|
|
$
|
154,177,917
|
|
Creations
|
|
|
39,296,005
|
|
|
|
147,623
|
|
Redemptions
|
|
|
(160,950
|
)
|
|
|
(5,019,765
|
)
|
Net investment loss
|
|
|
(215,094
|
)
|
|
|
(147,619
|
)
|
Net realized gain from gold bullion distributed for redemptions
|
|
|
30,456
|
|
|
|
96,601
|
|
Net change in unrealized appreciation (depreciation) on investment in gold bullion
|
|
|
16,484,533
|
|
|
|
(4,908,946
|
)
|
Net assets, end of period
|
|
$
|
253,914,693
|
|
|
$
|
144,345,811
|
|
See
notes to unaudited financial statements.
VanEck
Merk Gold Trust
Financial
Highlights
Per
Share Performance (for a share outstanding throughout each period)
|
|
For
the
Three Months Ended
April
30,
2020
|
|
|
For
the
Three Months Ended
April
30,
2019
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Net
asset value per share, beginning of period
|
|
$
|
15.48
|
|
|
$
|
12.99
|
|
Net
investment loss(a)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
Net
realized and unrealized gain (loss) on investment in gold bullion
|
|
|
1.17
|
|
|
|
(0.41
|
)
|
Net
change in net assets from operations
|
|
|
1.15
|
|
|
|
(0.42
|
)
|
Net
asset value per share, end of period
|
|
$
|
16.63
|
|
|
$
|
12.57
|
|
|
|
|
|
|
|
|
|
|
Total
return, at net asset value(b)
|
|
|
7.43
|
%
|
|
|
(3.23
|
)%
|
|
|
|
|
|
|
|
|
|
Ratio
to average net assets(c)
|
|
|
|
|
|
|
|
|
Net
investment loss
|
|
|
(0.40
|
)%
|
|
|
(0.40
|
)%
|
Net
expenses
|
|
|
0.40
|
%
|
|
|
0.40
|
%
|
|
(a)
|
Calculated
using average shares outstanding
|
See
notes to unaudited financial statements.
VanEck
Merk Gold Trust
Schedules
of Investment
April
30, 2020 (unaudited)
|
|
Fine
Ounces
|
|
|
Cost
|
|
|
Value
|
|
|
% of Net Assets
|
|
Gold bullion
|
|
|
149,120
|
|
|
$
|
198,290,461
|
|
|
$
|
253,914,695
|
|
|
|
100.00
|
%
|
Total investments
|
|
|
|
|
|
$
|
198,290,461
|
|
|
$
|
253,914,695
|
|
|
|
100.00
|
%
|
Liabilities in excess of other assets
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
0.00
|
%(a)
|
Net assets
|
|
|
|
|
|
|
|
|
|
$
|
253,914,693
|
|
|
|
100.00
|
%
|
January
31, 2020
|
|
Fine
Ounces
|
|
|
Cost
|
|
|
Value
|
|
|
% of Net Assets
|
|
Gold bullion
|
|
|
125,287
|
|
|
$
|
159,340,051
|
|
|
$
|
198,479,752
|
|
|
|
100.00
|
%
|
Total investments
|
|
|
|
|
|
$
|
159,340,051
|
|
|
$
|
198,479,752
|
|
|
|
100.00
|
%
|
Liabilities in excess of other assets
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
0.00
|
%(a)
|
Net assets
|
|
|
|
|
|
|
|
|
|
$
|
198,479,743
|
|
|
|
100.00
|
%
|
|
(a)
|
Amount
is less than 0.005%
|
See
notes to unaudited financial statements.
VanEck
Merk Gold Trust
Notes
to Unaudited Financial Statements
1.
ORGANIZATION
The
VanEck Merk Gold Trust (the “Trust”; known as the Merk Gold Trust prior to October 26, 2015 and then as the Van Eck
Merk Gold Trust prior to April 28, 2016) is an investment trust formed on May 6, 2014 under New York law pursuant to a depositary
trust agreement. After consideration of Financial Accounting Standards Topic 946, Merk Investments LLC (the “Sponsor”)
has concluded the Trust meets the fundamental characteristics of an investment company. In addition, while the Trust does not
currently possess all of the typical characteristics of an investment company, it believes its activities are consistent with
those of an investment company and will therefore apply the guidance in Financial Accounting Standards Topic 946, including disclosure
of the financial support contractually required to be provided by an investment company to any of its investees. The Sponsor is
responsible for, among other things, overseeing the performance of The Bank of New York Mellon (the “Trustee”) and
the Trust’s principal service providers, including the preparation of financial statements. The Trustee is responsible for
the day-to-day administration of the Trust.
Virtu
Financial, also known as the Lead Market Maker, was the Initial Purchaser and contributed 1,000 Ounces of Gold in exchange for
100,000 shares on May 6, 2014. At contribution, the value of the gold deposited with the Trust was based on the price of an Ounce
of Gold of $1,306.25. The Initial Purchaser is not affiliated with the Sponsor or the Trustee.
The
Trust’s primary objective is to provide investors with an opportunity to invest in gold through the shares and be able to
take delivery of physical gold bullion and gold coins (physical gold) in exchange for their shares. The Trust’s secondary
objective is for the shares to reflect the performance of the price of gold less the expenses of the Trust’s operations.
The Trust is not actively managed.
The
fiscal year end of the Trust is January 31st.
2.
SIGNIFICANT ACCOUNTING POLICIES
In
preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”),
management makes estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the reported amount of revenue and expenses reported
during the period. Actual results could differ from these estimates.
The
accompanying audited and unaudited financial statements were prepared in accordance with GAAP and with the instructions for the
Form 10-Q and the rules and regulations of the United States Securities and Exchange Commission. In the opinion of the Trust’s
management, all adjustments (which consists of normal recurring adjustments) necessary to present fairly the financial position
and the results of operations, as presented, have been made.
The
following is a summary of significant accounting policies followed by the Trust.
2.1.
Valuation of Gold
Financial
Accounting Standards Board Accounting Standards Codification 820, “Fair Value Measurements and Disclosures” (“ASC
820”), provides a single definition of fair value, a hierarchy for measuring fair value and expanded disclosures about fair
value adjustments.
Various
inputs are used in determining the fair value of the Trust’s assets or liabilities. These inputs are categorized into three
broad levels. Level 1 includes unadjusted prices in active markets for identical assets or liabilities. Level 2 includes other
significant observable market based inputs (including prices for similar securities, interest rates, prepayment speed, and credit
risk). Level 3 includes unobservable inputs, which may include management’s own assumptions in determining the fair value
of investments. The Trust does not hold any derivative instruments, and its assets only consist of allocated gold bullion and
gold receivable; representing gold covered by contractually binding orders for the creation of shares where the gold has not yet
been transferred to the Trust’s account and, from time to time, cash, which is used to pay expenses.
VanEck
Merk Gold Trust
Notes
to Unaudited Financial Statements
(continued)
The
following table summarizes the inputs used as of April 30, 2020 in determining the Trust’s investments at fair value for
purposes of ASC 820:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Investment in gold
|
|
$
|
253,914,695
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
253,914,695
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
following table summarizes the inputs used as of January 31, 2020 in determining the Trust’s investments at fair value for
purposes of ASC 820:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Investment in gold
|
|
$
|
198,479,752
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
198,479,752
|
|
|
$
|
—
|
|
|
$
|
—
|
|
London
Gold Delivery Bars are held by JPMorgan Chase Bank, N.A. (the “Custodian”), on behalf of the Trust, at the London,
United Kingdom vaulting premises. All gold is valued based on its Fine Ounce content, calculated by multiplying the weight of
gold by its purity; the same methodology is applied independent of the type of gold held by the Trust; similarly, the value of
up to 430 Fine Ounces of unallocated gold the Trust may hold is calculated by multiplying the number of Fine Ounces with the price
of gold determined by the Trustee as follows. The Trustee determines the net asset value (the “NAV”) of the Trust
on each day that NYSE Arca is open for regular trading, as promptly as practical after 4:00 PM New York time. The NAV of the Trust
is the aggregate value of the Trust’s assets less its estimated accrued but unpaid liabilities (which include accrued expenses).
The Trustee computes the NAV per Share by dividing the net assets of the Trust by the number of the shares outstanding on the
date the computation is made.
In
determining the Trust’s NAV, the Trustee values the gold held by the Trust based on the afternoon session of the twice daily
fix of the price of a Fine Ounce of gold which starts at 3:00 PM London, England time and is performed in London by the ICE Benchmark
Administration as an independent third-party administrator (the “LBMA PM Gold Price”). The Trustee also determines
the NAV per Share. If on a day when the Trust’s NAV is being calculated the LBMA PM Gold Price for that day is not available,
the Trustee will value the gold held by the Trust based on that day’s morning session of the twice daily fix of the price
of a Fine Ounce of gold, which starts at 10:30 AM London, England time and is performed in London by the ICE Benchmark Administration
as an independent third-party administrator (the “LBMA AM Gold Price”). If no fix is available for the day, the Trustee
will value the Trust’s gold based on the most recently announced LBMA AM Gold Price or LBMA PM Gold Price. Prior to March
20, 2015, the Trustee utilized the daily fix of the price of a Fine Ounce of gold as performed by the five members of the London
gold fix, which has now been replaced by the ICE Benchmark Administration as an independent third-party administrator.
2.2.
Expenses
The
Trustee issues shares to pay the Sponsor’s fee; the Sponsor pays the Trust’s ordinary expenses. The NAV of the Trust
is used to compute the Sponsor’s fee, and the Trustee subtracts from the NAV of the Trust the amount of accrued Sponsor’s
fee. To the extent the Trust issues additional shares to pay the Sponsor’s fee or sells gold to cover expenses or liabilities,
the amount of gold represented by each share will decrease. New deposits of gold, received in exchange for new shares issued by
the Trust, would not reverse this trend.
VanEck
Merk Gold Trust
Notes
to Unaudited Financial Statements
(continued)
2.3.
Creations and Redemptions of Shares
Shares
are issued and redeemed by the Trust in blocks of 50,000 shares called “Baskets” in exchange for gold from certain
registered broker-dealers or other securities market participants (“Authorized Participants”). Investors that are
not Authorized Participants may also take delivery of physical gold in exchange for their shares (“Delivery Applicants”).
Authorized
Participants
The
Trust issues and redeems Baskets only to Authorized Participants. The creation and redemption of Baskets will only be made in
exchange for the delivery to the Trust or the distribution by the Trust of the amount of gold represented by the Baskets being
created or redeemed, the amount of which will be based on the combined Fine Ounces represented by the number of shares included
in the Baskets being created or redeemed determined on the day the order to create or redeem Baskets is properly received.
Orders
to create and redeem Baskets may be placed only by Authorized Participants. An Authorized Participant must: (1) be a registered
broker-dealer or other securities market participant, such as a bank or other financial institution, which, but for an exclusion
from registration, would be required to register as a broker-dealer to engage in securities transactions, (2) be a participant
in DTC, and (3) must have an agreement with the Custodian establishing an unallocated account in London or have an existing unallocated
account meeting the standards described herein. To become an Authorized Participant, a person must enter into an Authorized Participant
Agreement with the Sponsor and the Trustee. The Authorized Participant Agreement provides the procedures for the creation and
redemption of Baskets and for the delivery of the gold required for such creations and redemptions. The Authorized Participant
Agreement and the related procedures attached thereto may be amended by the Trustee and the Sponsor, without the consent of any
investor or Authorized Participant. A transaction fee of $500 will be assessed on all creation and redemption transactions. Multiple
Baskets may be created on the same day, provided each Basket meets the requirements described below and that the Custodian is
able to allocate gold to the Trust Allocated Account such that the Trust Unallocated Account holds no more than 430 Fine Ounces
of gold at the close of a business day.
Authorized
Participants who make deposits with the Trust in exchange for Baskets will receive no fees, commissions or other form of compensation
or inducement of any kind from either the Sponsor or the Trust, and no such person has any obligation or responsibility to the
Sponsor or the Trust to effect any sale or resale of shares.
Delivery
Applicants
In
exchange for its shares and payment of a processing fee, a Delivery Applicant will be entitled to one or more bars or coins of
physical gold having approximately the total Fine Ounces represented by the shares on the day on which the Delivery Applicant’s
broker-dealer submits his or her shares to the Trust in exchange for physical gold. As it is unlikely that the total Fine Ounces
of physical gold will exactly correspond to the Fine Ounces represented by a specific number of shares, a Delivery Applicant will
likely receive some cash representing the net sale proceeds of any excess Fine Ounces (the “Cash Proceeds”). To minimize
the Cash Proceeds of any exchange, the delivery application requires that the number of shares submitted closely correspond in
Fine Ounces to the Fine Ounces of physical gold that is held or that is to be acquired by the Trust for which the delivery is
sought. Share submissions are processed in the order approved.
Changes
in the shares for the three-month period ended April 30, 2020 are as follows:
|
|
Shares
|
|
|
Amount
|
|
Shares, beginning of period at February 1, 2020
|
|
|
12,817,945
|
|
|
$
|
165,051,803
|
|
Shares issued
|
|
|
2,463,412
|
|
|
|
39,296,005
|
|
Shares redeemed
|
|
|
(10,241
|
)
|
|
|
(160,950
|
)
|
Shares, end of period at April 30, 2020
|
|
|
15,271,116
|
|
|
$
|
204,186,858
|
|
VanEck
Merk Gold Trust
Notes
to Unaudited Financial Statements
(continued)
Changes
in the shares for the year ended January 31, 2020 are as follows:
|
|
Shares
|
|
|
Amount
|
|
Shares, beginning of period at February 1, 2019
|
|
|
11,873,295
|
|
|
$
|
150,490,404
|
|
Shares issued
|
|
|
1,347,199
|
|
|
|
19,581,163
|
|
Shares redeemed
|
|
|
(402,549
|
)
|
|
|
(5,019,764
|
)
|
Shares, end of period at January 31, 2020
|
|
|
12,817,945
|
|
|
$
|
165,051,803
|
|
2.4.
Income Taxes
The
Trust is treated as a “grantor trust” for U.S. federal tax purposes. As a result, the Trust itself is not subject
to U.S. federal income tax. Instead, the Trust’s income and expenses “flow through” to the shareholders and
the Trustee reports the Trust’s income, gains, losses and deductions to the Internal Revenue Service on that basis.
The
Sponsor has evaluated whether or not there are uncertain tax positions that require financial statement recognition and has determined
that no reserves for uncertain tax positions are required as of April 30, 2020.
2.5.
Revenue Recognition Policy
A
gain or loss is recognized based on the difference between the selling price and the average cost method of the gold sold on a
trade date basis.
3.
INVESTMENT IN GOLD
The
following represents the changes in Ounces of gold and the respective fair value at April 30, 2020:
|
|
Ounces
|
|
|
Fair Value
|
|
Beginning balance as of February 1, 2020
|
|
|
125,287
|
|
|
$
|
198,479,752
|
|
Gold bullion contributed
|
|
|
23,933
|
|
|
|
39,080,904
|
|
Gold bullion distributed
|
|
|
(100
|
)
|
|
|
(160,950
|
)
|
Realized gain (loss) from gold distributed from in-kind
|
|
|
—
|
|
|
|
30,456
|
|
Change in unrealized appreciation (depreciation)
|
|
|
—
|
|
|
|
16,484,533
|
|
Ending balance as of April 30, 2020
|
|
|
149,120
|
|
|
$
|
253,914,695
|
|
The
following represents the changes in Ounces of gold and the respective fair value at January 31, 2020:
|
|
Ounces
|
|
|
Fair Value
|
|
Beginning balance as of February 1, 2019
|
|
|
116,515
|
|
|
$
|
154,177,919
|
|
Gold bullion contributed
|
|
|
12,719
|
|
|
|
18,920,998
|
|
Gold bullion distributed
|
|
|
(3,947
|
)
|
|
|
(5,019,758
|
)
|
Realized gain (loss) from gold distributed from in-kind
|
|
|
—
|
|
|
|
96,601
|
|
Change in unrealized appreciation (depreciation)
|
|
|
—
|
|
|
|
30,303,992
|
|
Ending balance as of January 31, 2020
|
|
|
125,287
|
|
|
$
|
198,479,752
|
|
4.
RELATED PARTIES—SPONSOR, TRUSTEE, CUSTODIAN AND MARKETING FEES
Fees
paid are to the Sponsor as compensation for services performed under the Trust Agreement. The Sponsor’s fee is payable at
an annualized rate of 0.40% of the Trust’s NAV, accrued on a daily basis computed on the prior Business Day’s NAV
and paid monthly in arrears.
The
Sponsor has agreed to assume the following administrative and marketing expenses incurred by the Trust: the Trustee’s monthly
fee and out-of-pocket expenses; the Custodian’s fee; the marketing support fees and expenses (including the fees and expenses
of Foreside Fund Services, LLC); expenses reimbursable under the Custody Agreement; the precious metals dealer’s fees and
expenses reimbursable under its agreement with the Sponsor; exchange listing fees; Securities and Exchange Commission registration
fees; printing and mailing costs; maintenance expenses for the Trust’s website; audit fees; and up to $100,000 per annum
in legal expenses.
VanEck
Merk Gold Trust
Notes
to Unaudited Financial Statements
(continued)
Affiliates
of the Trustee, as well as affiliates of the Custodian may from time to time act as Authorized Participants to purchase or sell
gold or shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.
On
October 22, 2015, the Sponsor, for the benefit of the Trust, entered into a Marketing Agent Agreement (the “Marketing Agreement”)
with Van Eck Securities Corporation (“VanEck” or “Marketing Agent”). Pursuant to the Marketing Agreement,
VanEck provides assistance in the marketing of the shares. The obligations created by the Marketing Agreement are obligations
of the Sponsor of the Trust and any fees payable under the Marketing Agreement to VanEck are payable from the Sponsor’s
fee (as calculated and defined in the Trust Agreement). The Trust will not incur additional financial or other performance obligations
pursuant to the Marketing Agreement.
5.
SHAREHOLDER OWNERSHIP
Merk
Hard Currency Fund owned a market value of $3,096,822 (187,800 shares) which equates to 1.23% ownership in the Trust as of April
30, 2020.
6.
CONCENTRATION OF RISK
The
Trust’s sole business activity is the investment in gold bullion. Several factors could affect the price of gold: (i) global
gold supply and demand, which is influenced by such factors as forward selling by gold producers, purchases made by gold producers
to unwind gold hedge positions, central bank purchases and sales, and production and cost levels in major gold-producing countries;
(ii) investors’ expectations with respect to the rate of inflation; (iii) currency exchange rates; (iv) interest rates;
(v) investment and trading activities of hedge funds and commodity funds; and (vi) global or regional political, economic or financial
events and situations. In addition, there is no assurance that gold will maintain its long-term value in terms of purchasing power
in the future. In the event that the price of gold declines, the Sponsor expects the value of an investment in the shares to decline
proportionately. Each of these events could have a material adverse effect on the Trust’s financial position and results
of operations.
7.
UNCERTAINTY REGARDING THE EFFECT 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 have intensified. To date,
this coronavirus has not had a significant impact on the Trust. Although we currently expect that any disruptive impact of coronavirus
on the Trust 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.
8.
INDEMNIFICATION
Under
the Trust’s organizational documents, each of the Trustee (and its directors, employees and agents) and the Sponsor (and
its members, managers, directors, officers, employees, affiliates) is indemnified against any liability, cost or expense it incurs
without gross negligence, bad faith or willful misconduct on its part and without reckless disregard on its part of its obligations
and duties under the Trust’s organizational documents. The Trust’s maximum exposure under these arrangements is unknown
as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on industry
experience, management believes the risk of loss is remote.
9.
SUBSEQUENT EVENTS
Management
has evaluated the events and transactions that have occurred through the date the financial statements were issued and noted no
items requiring adjustment of the financial statements or additional disclosures.
*
* *
This
report is submitted for the general information of the shareholders. It is not authorized for distribution to prospective investors
unless preceded or accompanied by an effective prospectus, which includes information regarding the Trust’s risks, objectives,
fees and expenses and other information.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This
information should be read in conjunction with the unaudited financial statements and notes to the unaudited financial statements
included in Item 1 of Part 1 of this Form 10-Q. The discussion and analysis that follows may contain forward-looking statements
with respect to the VanEck Merk Gold Trust’s financial conditions, operations, future performance and business. These statements
can be identified by the use of the words “may,” “should,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential” or similar words and phrases. These statements are based upon certain assumptions and analyses Merk Investments
LLC, the Sponsor, has made based on its perception of historical trends, current conditions and expected future developments.
Neither the Trust nor the Sponsor is under a duty to update any of the forward looking statements, to conform such statements
to actual results or to reflect a change in management’s expectations or predictions.
Introduction
The
VanEck Merk Gold Trust (the “Trust”), formerly known as the Merk Gold Trust prior to October 26, 2015 and then as
the Van Eck Merk Gold Trust prior to April 28, 2016, is an investment trust formed on May 6, 2014 under New York law pursuant
to a depositary trust agreement (as amended, the “Trust Agreement”). The Trust is not managed like a corporation or
an active investment vehicle. It does not have any officers, directors, or employees and is administered by The Bank of New York
Mellon (the “Trustee”) pursuant to the Trust Agreement. The Trust is not registered as an investment company under
the Investment Company Act of 1940, as amended, and is not required to register under such act. It will not hold or trade in commodity
futures contracts, nor is it a commodity pool, or subject to regulation as a commodity pool operator or a commodity trading adviser
in connection with issuing shares.
The
Trust’s primary objective is to provide investors with an opportunity to invest in gold through the shares and be able to
take delivery of physical gold bullion and gold coins (“physical gold”) in exchange for those shares. The Trust’s
secondary objective is for the shares to reflect the performance of the price of gold less the expenses of the Trust’s operations.
Each share represents a fractional undivided beneficial interest in the Trust’s net assets. The Trust’s assets consist
principally of gold held on the Trust’s behalf in financial institutions for safekeeping. Physical gold that the Trust will
hold includes London Bars and, for the limited purposes described herein, other gold bars and coins, without numismatic value,
having a minimum fineness (or purity) of 995 parts per 1,000 (99.5%) or, for American Gold Eagle gold coins, with a minimum fineness
of 91.67%.
Shares
are issued by the Trust only in blocks of 50,000 shares called “Baskets” in exchange for gold from certain registered
broker-dealers or other securities market participants (“Authorized Participants”). See “Creation and Redemption
of Shares—Authorized Participants” in the notes to our financial statements for requirements to qualify as
an Authorized Participant. Baskets may be redeemed by the Trust in exchange for the amount of gold corresponding to their redemption
value. The Trust issues and redeems Baskets on an ongoing basis at net asset value to Authorized Participants who have entered
into a contract with the Sponsor and the Trustee.
Shares
of the Trust trade on the New York Stock Exchange (the “NYSE”) Arca under the symbol “OUNZ”.
Valuation
of Gold and Computation of Net Asset Value
On
each business day that the NYSE Arca is open for regular trading, as promptly as practicable after 4:00 PM (New York time) the
Trustee will value the gold held by the Trust and will determine the net asset value (“NAV”) of the Trust, as described
below.
The
NAV of the Trust is the aggregate value of gold and other assets, if any, of the Trust (other than any amounts credited to the
Trust’s reserve account, if any) and cash, if any, less liabilities of the Trust, which include estimated accrued but unpaid
fees, expenses and other liabilities.
All
gold is valued based on its Fine Ounce content, calculated by multiplying the weight of gold by its purity; the same methodology
is applied independent of the type of gold held by the Trust; similarly, the value of up to 430 Fine Ounces of unallocated gold
the Trust may hold is calculated by multiplying the number of Fine Ounces with the price of gold determined by the Trustee as
follows. The Trustee values the gold held by the Trust based on the afternoon session of the twice daily fix of the price of a
Fine Ounce of gold which starts at 3:00 PM London, England time and is performed in London by the ICE Benchmark Administration
as an independent third-party administrator (the “LBMA PM Gold Price”). The Trustee also determines the NAV per Share.
If on a day when the Trust’s NAV is being calculated the LBMA PM Gold Price for that day is not available, the Trustee will
value the gold held by the Trust based on that day’s morning session of the twice daily fix of the price of a Fine Ounce
of gold, which starts at 10:30 AM London, England time and is performed in London by the ICE Benchmark Administration as an independent
third-party administrator (the “LBMA AM Gold Price”). If no fix is available for the day, the Trustee will value the
Trust’s gold based on the most recently announced LBMA AM Gold Price or LBMA PM Gold Price. Prior to March 20, 2015, the
Trustee utilized the daily fix of the price of a Fine Ounce of gold as performed by the five members of the London gold fix, which
has now been replaced by the ICE Benchmark Administration as an independent third-party administrator.
If
the Sponsor determines that such price is inappropriate to use, it shall identify an alternate basis for evaluation to be employed
by the Trustee. The Sponsor may instruct the Trustee to use a different publicly available price which the Sponsor determines
to fairly represent the commercial value of the Trust’s gold.
Material
Events
On
October 22, 2015, the Sponsor and the Trustee entered into a First Amendment To Depositary Trust Agreement (the “First Trust
Amendment”), amending the Trust Agreement, dated as of May 6, 2014, to effectuate a change in the name of the Trust from
“Merk Gold Trust” to “Van Eck Merk Gold Trust,” effective as of October 26, 2015. As a result of the name
change, all references to “Merk Gold Trust” in the Trust Agreement were amended to read “Van Eck Merk Gold Trust,”
and the shares offered by the Trust were known as the “Van Eck Merk Gold Shares” (“Shares”).
On
October 22, 2015, the Sponsor, for the benefit of the Trust, entered into a Marketing Agent Agreement (the “Marketing Agreement”)
with Van Eck Securities Corporation (“VanEck” or “Marketing Agent”). Pursuant to the Marketing Agreement,
VanEck now provides assistance in the marketing of the Shares. The obligations created by the Marketing Agreement are obligations
of the Sponsor of the Trust and any fees payable under the Marketing Agreement to VanEck are payable from the Sponsor’s
fee (as calculated and defined in the Trust Agreement). The Trust will not incur additional financial or other performance obligations
pursuant to the Marketing Agreement.
The
Sponsor entered into the First Trust Amendment and effectuated the name change of the Trust in satisfaction of a term of the Marketing
Agreement. The Marketing Agreement further grants VanEck the right to elect to replace Merk as the sponsor of the Trust under
specific qualifying circumstances, subject to the execution and consummation of definitive agreements addressing all regulatory
requirements applicable to such transaction and satisfaction of such requirements, and announcement and related reporting at such
time. Specifically, VanEck has a right of first refusal for the purchase of the sponsorship of the Trust, and all rights attributable
thereto, upon the earlier of a commitment for a change of control of Merk or 15 years from the date of the Marketing Agreement.
Additionally, VanEck may elect to replace Merk as the sponsor of the Trust upon the earlier of the average daily net assets of
the Trust during a calendar quarter not attributable to Shares held by Merk or its affiliates (“Third Party Assets”)
equaling $500 million, or VanEck’s compensation under the fee provisions of the Marketing Agreement reaching in aggregate
10% of the gross proceeds from sale of the Shares (the “Maximum Fee”).
Merk
further agreed that if the Third Party Assets equal or exceed $500 million, for such period as Merk remains sponsor of the Trust,
VanEck may propose the rate of the Sponsor’s fee to Merk, which Merk shall not unreasonably reject and shall timely adopt
if reasonable, provided, VanEck acknowledges that only the formal named sponsor of the Trust shall have the right to set the Sponsor’s
fee at any time.
On
April 28, 2016, the Sponsor and the Trustee entered into a Second Amendment to Depositary Trust Agreement (the “Second Trust
Amendment”), amending the Trust Agreement to effectuate a second change in the name of the Trust from “Van Eck Merk
Gold Trust” to “VanEck Merk Gold Trust,” at the request of the Marketing Agent to reflect its rebranding as
“VanEck”. As a result of the name change, all references to “Van Eck Merk Gold Trust” in the Trust Agreement
were amended to read “VanEck Merk Gold Trust,” and the Shares offered by the Trust are now known as the “VanEck
Merk Gold Shares”. Except for the name change effected pursuant to the Second Trust Amendment, the Trust Agreement remains
in full force and effect on its existing terms.
Change
in Settlement Cycle and Amendment to Authorized Participant Agreements
On
March 22, 2017, the Securities and Exchange Commission adopted an amendment to reduce by one business day the standard settlement
cycle for most broker-dealer securities transactions. Prior to the implementation of the shorter settlement cycle, the standard
settlement cycle for such transactions was three business days, known as T+3. The amended rule shortens the settlement cycle to
two business days, or T+2. This change in the settlement cycle affects both the creation and redemption procedures for Baskets
and trading in the Shares. Compliance with the new settlement cycle went into effect on September 5, 2017.
Due
to the fact that the aforementioned creation and redemption procedures are addressed in the Authorized Participant Agreements
by among the Authorized Participants, the Trustee and the Sponsor, the Trustee and the Sponsor exercised their rights to amend
each such agreement to address the new T+2 settlement cycle and executed First Amendments to each of the Authorized Participant
Agreements, effective as of September 5, 2017, and provided timely notice of such amendment to the Authorized Participants. Except
for the foregoing amendments, the Authorized Participant Agreements remain in full force and effect on their existing terms.
Results
from Operations
The
Trust is a trust formed on May 6, 2014 under New York law pursuant to the Trust Agreement. After consideration of Financial Accounting
Standards Topic 946, however, the Sponsor has concluded that for financial statement reporting purposes the Trust meets the fundamental
characteristics of an investment company. In addition, while the Trust does not currently possess all of the typical characteristics
of an investment company, the Sponsor believes the Trust’s activities are consistent with those of an investment company
and will therefore apply the guidance in Financial Accounting Standards Topic 946, including disclosure of the financial support
contractually required to be provided by an investment company to any of its investees. The Sponsor is responsible for, among
other things, overseeing the performance of the Trustee and the Trust’s principal service providers, including the preparation
of financial statements. The Trustee is responsible for the day-to-day administration of the Trust.
The
Three Months Ended April 30, 2020 Compared to the Three Months Ended April 30, 2019
The
Trust’s NAV increased from $198,479,743 at January 31, 2020 to $253,914,693 at April 30, 2020, an 27.93% increase, compared
to a 6.38% decrease from $154,177,917 at January 31, 2019 to $144,345,811 at April 30, 2019. The increase in the Trust’s
NAV in the quarter ended April 30, 2020 resulted from an increase in the value of investments in gold bullion as compared to the
prior period. The number of outstanding Shares increased from 12,817,945 Shares at January 31, 2020 to 15,271,116 Shares at April
30, 2020 due to the creation of Shares by Authorized Participants and the creation of 13,412 Shares in the quarter for Sponsor’s
fees, as compared to 11,593 Shares for such purpose in the quarter ended April 30, 2019. The number of outstanding Shares at April
30, 2019 was 11,482,339. The Sponsor’s fees are payable at an annualized rate of 0.40% of the Trust’s NAV, accrued
on a daily basis computed on the prior business day’s NAV and paid monthly in arrears. Due to the daily accrual but monthly
payment, the number of Sponsor’s fee Shares issued can vary and possibly decrease, even as the number of Shares outstanding
increases slightly.
The
Trust’s NAV per Share increased 7.43% during the quarter ended April 30, 2020, starting at $15.48 per Share and ending at
$16.63 per Share, compared to a decrease of 3.23%, from $12.99 to $12.57 during the quarter ended April 30, 2019. The Trust’s
NAV per share increased slightly less than the price per ounce of gold on a percentage basis due to the Sponsor’s fees,
which were 13,412 Shares in total for the quarter ended April 30, 2020, compared with 11,593 Shares paid as Sponsor’s fees
in the quarter ended April 30, 2019. The NAV per share of $17.01 on April 14, 2020 was the highest during the quarter, compared
with a low of $14.40 on March 19, 2020.
The
change in net assets from operations for the quarter ended April 30, 2020 was $16,299,895, resulting from the Sponsor’s
fees of $(215,094), a net realized gain of $30,456 from gold bullion distributed for redemptions, and a net change in
unrealized appreciation on investment in gold bullion of $16,484,533. In comparison, the change in net assets from operations
for the quarter ended April 30, 2019 was $(4,959,964), resulting from the Sponsor’s fees of $(147,619), a net realized
gain from gold bullion distributed for redemptions of $96,601 and a net change in unrealized depreciation on investment in
gold bullion of $(4,908,946)
Other
than the Sponsor’s fee, the Trust had no expenses during the quarter ended April 30, 2020 or the quarter ended April
30, 2019.
For
the calendar quarter ended April 30, 2020, the Marketing Agent earned a fee of $2,886 which was paid by the Sponsor on May 26,
2020; since the initiation of the Marketing Agent’s efforts on behalf of the Trust on October 22, 2015, a total of $76,292
in Fees has been paid, representing 0.3178% of the Maximum Fee potentially payable to the Marketing Agent pursuant to the Marketing
Agent Agreement.
Liquidity
and Capital Resources
The
Trust is not aware of any trends, demands, commitments, events or uncertainties that are reasonably likely to result in material
changes to its liquidity needs. In exchange for the Sponsor’s fee, the Sponsor has agreed to assume most of the expenses
incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this report was the Sponsor’s
fee.
The
Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust’s gold as necessary to pay the Trust’s
expenses not otherwise assumed by the Sponsor. The Trustee will not sell gold to pay the Sponsor’s fee but will pay the
Sponsor’s fee in Shares in lieu of cash. At April 30, 2020 and April 30, 2019, the Trust did not have any cash balances.
Off-Balance
Sheet Arrangements
The
Trust has no off-balance sheet arrangements.
Critical
Accounting Policies
The
unaudited financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these unaudited financial statements relies on estimates and assumptions that
impact the Trust’s financial position and results of operations. These estimates and assumptions affect the Trust’s
application of accounting policies. In addition, please refer to Note 2 to the unaudited financial statements for further discussion
of accounting policies.
Effective
May 6, 2014, the Trust has adopted the provisions of Financial Accounting Standards Topic 946, Investment Companies, and follows
specialized accounting.
Investment
by Certain Retirement Plans
Section
408(m) of the Internal Revenue Code, as amended (the “Code”), provides that the purchase of a “collectible”
as an investment for an individual retirement account (an “IRA”), or for a participant-directed account maintained
under any plan that is tax-qualified under Code section 401(a) (“Tax-Qualified Account”), is treated as a taxable
distribution from the account to the owner of the IRA, or to the participant for whom the Tax-Qualified Account is maintained,
of an amount equal to the cost to the account of acquiring the collectible. The Trust, through the Sponsor, has received a private
letter ruling from the Internal Revenue Service that provides that (1) the acquisition of Shares by an IRA or a Tax-Qualified
Account will not constitute the acquisition of a collectible and (2) an IRA or such an account’s owning Shares will not
be treated as having made a distribution to the IRA owner or plan participant under Code section 408(m) solely by virtue of owning
those Shares. If a redemption of Shares results in the delivery of gold to an IRA or Tax-Qualified Account, however, that exchange
would constitute the acquisition of a collectible to the extent provided under that section. See also “ERISA and Related
Considerations.”
Investors
who are considering exchanging their Shares for gold coins or gold bullion should consult with their tax advisors regarding the
tax implications thereof before doing so.
ERISA
and Related Considerations
The
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and section 4975 of the Code impose certain
requirements on employee benefit plans and certain other plans and arrangements, including IRAs and individual retirement annuities,
Keogh plans and certain collective investment funds or insurance company general or separate accounts in which such plans, accounts,
annuities or arrangements are invested, that are subject to ERISA or the Code, respectively (collectively, “Plans”),
and on persons who are fiduciaries with respect to the investment of assets treated as “plan assets” of a Plan. Investments
by Plans are subject to the fiduciary requirements and the applicability of prohibited transaction restrictions under ERISA.
Government
plans and some church plans are not subject to the fiduciary responsibility provisions of ERISA or the provisions of Code section
4975 but may be subject to substantially similar rules under state or other federal law. Fiduciaries of any such plans are advised
to consult with their counsel prior to an investment in Shares.
In
contemplating an investment of a portion of Plan assets in Shares, the Plan fiduciary responsible for making such investment should
carefully consider, taking into account the facts and circumstances of the Plan, the “Risk Factors” discussed below
and whether such investment is consistent with its fiduciary responsibilities, including (1) whether the fiduciary has the authority
to make the investment under the appropriate governing Plan instrument, (2) whether the investment would constitute a direct or
indirect non-exempt prohibited transaction with a “party in interest” or “disqualified person,” (3) the
Plan’s funding objectives, and (4) whether under the general fiduciary standards of investment prudence and diversification
such investment is appropriate for the Plan, taking into account the Plan’s overall investment policy, the composition of
its investment portfolio and its need for sufficient liquidity to pay benefits when due.