Item 1. Financial Statements (Unaudited)
VanEck Merk Gold Trust
Statements of Assets and Liabilities
| |
July 31, 2022 | | |
January 31, 2022 | |
| |
(unaudited) | | |
| |
Assets | |
| | |
| |
Investments in gold bullion (cost $592,176,641 and $533,769,944, respectively) | |
$ | 623,229,746 | | |
$ | 586,245,778 | |
Total assets | |
| 623,229,746 | | |
| 586,245,778 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Sponsor’s fee payable | |
| 15 | | |
| 6 | |
Total liabilities | |
| 15 | | |
| 6 | |
| |
| | | |
| | |
Net assets | |
$ | 623,229,731 | | |
$ | 586,245,772 | |
| |
| | | |
| | |
Net assets consists of: | |
| | | |
| | |
Paid-in-capital | |
$ | 590,574,390 | | |
$ | 532,684,047 | |
Accumulated earnings | |
| 32,655,341 | | |
| 53,561,725 | |
| |
$ | 623,229,731 | | |
$ | 586,245,772 | |
Shares issued and outstanding (no par value) | |
| 36,617,439 | | |
| 33,599,843 | |
Net asset value per share | |
$ | 17.02 | | |
$ | 17.45 | |
See notes to unaudited financial statements.
VanEck Merk Gold Trust
Statements of Operations
| |
For the
Three Months Ended July 31, 2022 | | |
For the
Three Months Ended July 31, 2021 | | |
For the Six Months Ended July 31, 2022 | | |
For the Six Months Ended July 31, 2021 | |
| |
(unaudited) | | |
(unaudited) | | |
(unaudited) | | |
(unaudited) | |
Expenses | |
| | |
| | |
| | |
| |
Sponsor’s fees | |
$ | 406,742 | | |
$ | 303,240 | | |
$ | 803,310 | | |
$ | 572,240 | |
Total expenses | |
| 406,742 | | |
| 303,240 | | |
| 803,310 | | |
| 572,240 | |
Net investment loss | |
| (406,742 | ) | |
| (303,240 | ) | |
| (803,310 | ) | |
| (572,240 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net realized and unrealized gain (loss) | |
| | | |
| | | |
| | | |
| | |
Net realized gain from gold bullion distributed for redemptions | |
| 1,265,274 | | |
| 859,881 | | |
| 1,319,655 | | |
| 909,921 | |
Net change in unrealized appreciation (depreciation) on investment in gold bullion | |
| (58,157,458 | ) | |
| 13,322,236 | | |
| (21,422,729 | ) | |
| (10,287,844 | ) |
Net realized and unrealized gain (loss) from operations | |
| (56,892,184 | ) | |
| 14,182,117 | | |
| (20,103,074 | ) | |
| (9,377,923 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net increase (decrease) in net assets resulting from operations | |
$ | (57,298,926 | ) | |
$ | 13,878,877 | | |
$ | (20,906,384 | ) | |
$ | (9,950,163 | ) |
See notes to unaudited financial statements.
VanEck Merk Gold Trust
Statements of Changes in Net Assets
| |
For the Three Months Ended July 31, 2022 | | |
For the Three Months Ended July 31, 2021 | | |
For the Six Months Ended July 31, 2022 | | |
For the Six Months Ended July 31, 2021 | |
| |
(unaudited) | | |
(unaudited) | | |
(unaudited) | | |
(unaudited) | |
Net assets, beginning of period | |
$ | 676,703,604 | | |
$ | 447,555,111 | | |
$ | 586,245,772 | | |
$ | 442,483,105 | |
Creations | |
| 27,825,697 | | |
| 48,666,602 | | |
| 82,257,280 | | |
| 78,078,798 | |
Redemptions | |
| (24,000,644 | ) | |
| (7,884,284 | ) | |
| (24,366,937 | ) | |
| (8,395,434 | ) |
Net investment loss | |
| (406,742 | ) | |
| (303,240 | ) | |
| (803,310 | ) | |
| (572,240 | ) |
Net realized gain from gold bullion distributed for redemptions | |
| 1,265,274 | | |
| 859,881 | | |
| 1,319,655 | | |
| 909,921 | |
Net change in unrealized appreciation (depreciation) on investment in gold bullion | |
| (58,157,458 | ) | |
| 13,322,236 | | |
| (21,422,729 | ) | |
| (10,287,844 | ) |
Net assets, end of period | |
$ | 623,229,731 | | |
$ | 502,216,306 | | |
$ | 623,229,731 | | |
$ | 502,216,306 | |
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 July 31, 2022 | | |
For the Three Months Ended July 31, 2021 | | |
For the Six Months Ended July 31, 2022 | | |
For the Six Months Ended July 31, 2021 | |
| |
(unaudited) | | |
(unaudited) | | |
(unaudited) | | |
(unaudited) | |
Net asset value per share, beginning of period | |
$ | 18.56 | | |
$ | 17.21 | | |
$ | 17.45 | | |
$ | 18.16 | |
Net investment loss(a) | |
| (0.01 | ) | |
| (0.01 | ) | |
| (0.02 | ) | |
| (0.02 | ) |
Net realized and unrealized gain (loss) on investment in gold bullion | |
| (1.53 | ) | |
| 0.57 | | |
| (0.41 | ) | |
| (0.37 | ) |
Net change in net assets from operations | |
| (1.54 | ) | |
| 0.56 | | |
| (0.43 | ) | |
| (0.39 | ) |
Net asset value per share, end of period | |
$ | 17.02 | | |
$ | 17.77 | | |
$ | 17.02 | | |
$ | 17.77 | |
| |
| | | |
| | | |
| | | |
| | |
Total return, at net asset value(b) | |
| (8.30 | )% | |
| 3.25 | % | |
| (2.46 | )% | |
| (2.15 | )% |
| |
| | | |
| | | |
| | | |
| | |
Ratio to average net assets(c) | |
| | | |
| | | |
| | | |
| | |
Net investment loss | |
| (0.25 | )% | |
| (0.25 | )% | |
| (0.25 | )% | |
| (0.25 | )% |
Net expenses | |
| 0.25 | % | |
| 0.25 | % | |
| 0.25 | % | |
| 0.25 | % |
(a) | Calculated using average shares outstanding |
See notes to unaudited financial statements.
VanEck Merk Gold Trust
Schedules of Investment
July 31, 2022 (unaudited)
| |
Fine Ounces | | |
Cost | | |
Value | | |
% of Net Assets | |
Gold bullion | |
| 355,441 | | |
$ | 592,176,641 | | |
$ | 623,229,746 | | |
| 100.00 | % |
Total investments | |
| 355,441 | | |
$ | 592,176,641 | | |
$ | 623,229,746 | | |
| 100.00 | % |
Liabilities in excess of other assets | |
| | | |
| | | |
| (15 | ) | |
| (0.00 | )%(a) |
Net assets | |
| | | |
| | | |
$ | 623,229,731 | | |
| 100.00 | % |
January 31, 2022
| |
Fine Ounces | | |
Cost | | |
Value | | |
% of Net Assets | |
Gold bullion | |
| 326,554 | | |
$ | 533,769,944 | | |
$ | 586,245,778 | | |
| 100.00 | % |
Total investments | |
| 326,554 | | |
$ | 533,769,944 | | |
$ | 586,245,778 | | |
| 100.00 | % |
Liabilities in excess of other assets | |
| | | |
| | | |
| (6 | ) | |
| (0.00 | )%(a) |
Net assets | |
| | | |
| | | |
$ | 586,245,772 | | |
| 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 July 31, 2022 in determining the Trust’s investments at fair value for purposes of ASC 820:
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
Investment in gold | |
$ | 623,229,746 | | |
$ | — | | |
$ | — | |
Total | |
$ | 623,229,746 | | |
$ | — | | |
$ | — | |
The following table summarizes the inputs used
as of January 31, 2022 in determining the Trust’s investments at fair value for purposes of ASC 820:
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
Investment in gold | |
$ | 586,245,778 | | |
$ | — | | |
$ | — | |
Total | |
$ | 586,245,778 | | |
$ | — | | |
$ | — | |
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 six-month period
ended July 31, 2022 are as follows:
| |
Shares | | |
Amount | |
Shares, beginning of period at February 1, 2022 | |
| 33,599,843 | | |
$ | 532,684,047 | |
Shares issued | |
| 4,444,474 | | |
| 82,257,280 | |
Shares redeemed | |
| (1,426,878 | ) | |
| (24,366,937 | ) |
Shares, end of period at July 31, 2022 | |
| 36,617,439 | | |
$ | 590,574,390 | |
VanEck Merk Gold Trust
Notes to Unaudited Financial Statements
(continued)
Changes in the shares for the year ended January
31, 2022 are as follows:
| |
Shares | | |
Amount | |
Shares, beginning of period at February 1, 2021 | |
| 24,366,372 | | |
$ | 370,737,948 | |
Shares issued | |
| 10,223,025 | | |
| 179,243,246 | |
Shares redeemed | |
| (989,554 | ) | |
| (17,297,147 | ) |
Shares, end of period at January 31, 2022 | |
| 33,599,843 | | |
$ | 532,684,047 | |
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 July 31, 2022.
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 July 31, 2022:
| |
Ounces | | |
Fair Value | |
Beginning balance as of February 1, 2022 | |
| 326,554 | | |
$ | 586,245,778 | |
Gold bullion contributed | |
| 42,741 | | |
| 81,454,004 | |
Gold bullion distributed | |
| (13,854 | ) | |
| (24,366,962 | ) |
Realized gain (loss) from gold distributed from in-kind | |
| — | | |
| 1,319,655 | |
Change in unrealized appreciation (depreciation) | |
| — | | |
| (21,422,729 | ) |
Ending balance as of July 31, 2022 | |
| 355,441 | | |
$ | 623,229,746 | |
The following represents the changes in Ounces
of gold and the respective fair value at January 31, 2022:
| |
Ounces | | |
Fair Value | |
Beginning balance as of February 1, 2021 | |
| 237,409 | | |
$ | 442,483,116 | |
Gold bullion contributed | |
| 98,772 | | |
| 177,971,942 | |
Gold bullion distributed | |
| (9,627 | ) | |
| (17,297,123 | ) |
Realized gain (loss) from gold distributed from in-kind | |
| — | | |
| 1,756,856 | |
Change in unrealized appreciation (depreciation) | |
| — | | |
| (18,669,013 | ) |
Ending balance as of January 31, 2022 | |
| 326,554 | | |
$ | 586,245,778 | |
4. RELATED PARTIES—SPONSOR, TRUSTEE,
CUSTODIAN AND MARKETING FEES
Fees paid are to the Sponsor as compensation
for services performed under the Trust Agreement. Effective July 24, 2020, the Sponsor’s fee is payable at an annualized rate of
0.25% of the Trust’s NAV, accrued on a daily basis computed on the prior Business Day’s NAV and paid monthly in arrears. Prior
to July 24, 2020, the Sponsor’s fee accrued at an annualized rate of 0.40% of the Trust’s NAV.
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 (as amended to date, 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
$364,017 (21,300 shares) which equates to 0.06% ownership in the Trust as of July 31, 2022.
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.
COVID-19 has not had a significant impact on the
Trust. There have been some signs of increased demand for physical gold as well as some supply constraints for certain coins at times
during the pandemic. As a result, precious metals dealers have increased coin and bar premiums at times. The Sponsor regularly updates
available coins and Processing Fees on merkgold.com/fees.
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 (as amended to date, 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.
Effective July 24, 2020, the Sponsor exercised
its rights under the Trust Agreement to adjust the Sponsor’s fee upon written notice to the Trustee and publication of the proposed
change on its website. Prior to July 24, 2020, the Sponsor’s fee accrued at an annualized rate of 0.40% of the Trust’s NAV.
Effective July 24, 2020, the Sponsor’s fee is payable at an annualized rate of 0.25% of the Trust’s NAV, accrued on a daily
basis computed on the prior Business Day’s NAV and paid monthly in arrears.
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 July 31, 2022 Compared to the Three Months
Ended July 31, 2021
The Trust’s NAV decreased from $676,703,604
at April 30, 2022 to $623,229,731 at July 31, 2022, a 7.90% decrease, compared to a 12.21% increase from $447,555,111 at April 30, 2021
to $502,216,306 at July 31, 2021. The decrease in the Trust’s NAV in the quarter ended July 31, 2022 resulted from a decrease in
the value of investments in gold bullion as compared to the prior period. The number of outstanding Shares increased from 36,451,520 Shares
at April 30, 2022 to 36,617,439 Shares at July 31, 2022 due to the creation of Shares by Authorized Participants and the creation of 23,234
Shares in the quarter for Sponsor’s fees, as compared to 17,044 Shares for such purpose in the quarter ended July 31, 2021. The
number of outstanding Shares on July 31, 2021 was 28,267,310. Effective July 24, 2020, the Sponsor’s fees are payable at an annualized
rate of 0.25% of the Trust’s NAV, accrued on a daily basis computed on the prior Business Day’s NAV and paid monthly in arrears.
Prior to July 24, 2020, the Sponsor’s fees accrued at an annualized rate of 0.40% of the Trust’s NAV. 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 decreased 8.30%
during the quarter ended July 31, 2022, starting at $18.56 per Share and ending at $17.02 per Share, compared to an increase of 3.25%,
from $17.21 to $17.77 during the quarter ended July 31, 2021. The Trust’s NAV per share decreased slightly more than the price per
ounce of gold on a percentage basis due to the Sponsor’s fees, which were 23,234 Shares in total for the quarter ended July 31,
2022, compared with 17,044 Shares paid as Sponsor’s fees in the quarter ended July 31, 2021. The NAV per share of $18.56 on May
5, 2022 was the highest during the quarter, compared with a low of $16.51 on July 14, 2022.
The change in net assets from operations for the
quarter ended July 31, 2022 was $(57,298,926), resulting from the Sponsor’s fees of $(406,742), a net realized gain of $1,265,274
from gold bullion distributed for redemptions, and a net change in unrealized depreciation on investment in gold bullion of $(58,157,458).
In comparison, the change in net assets from operations for the quarter ended July 31, 2021 was $13,878,877, resulting from the Sponsor’s
fees of $(303,240), a net realized gain of $859,881 from gold bullion distributed for redemptions, and a net change in unrealized appreciation
on investment in gold bullion of $13,322,236.
Other than the Sponsor’s fee, the Trust
had no expenses during the quarter ended July 31, 2022 or the quarter ended July 31, 2021.
The Six Months Ended July 31, 2022 Compared to the Six Months Ended
July 31, 2021
The Trust’s NAV increased from $586,245,772
at January 31, 2022 to $623,229,731 at July 31, 2022, a 6.31% increase, compared to a 13.50% increase from $442,483,105 at January 31,
2021 to $502,216,306 at July 31, 2021. The increase in the Trust’s NAV in the six months ended July 31, 2022 resulted from a decrease
in the value of investments in gold bullion that was offset by the creation of Shares as compared to the prior period. The number of outstanding
Shares increased from 33,599,843 Shares at January 31, 2022 to 36,617,439 Shares at July 31, 2022 due to the redemption of 1,426,878 Shares
offset by the creation of 4,444,474 Shares which include 44,474 Shares created for Sponsor’s fees in the six months ended July 31,
2022, as compared to 482,046 Shares redeemed, offset by 4,382,984 shares created which include 32,984 Shares created for Sponsor’s
fees in the six months ended July 31, 2021. The number of outstanding Shares on July 31, 2021 was 28,267,310. Effective July 24, 2020,
the Sponsor’s fees are payable at an annualized rate of 0.25% of the Trust’s NAV, accrued on a daily basis computed on the
prior Business Day’s NAV and paid monthly in arrears. Prior to July 24, 2020, the Sponsor’s fees accrued at an annualized
rate of 0.40% of the Trust’s NAV. 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 decreased approximately
2.46% during the six months ended July 31, 2022, starting at $17.45 per Share and ending at $17.02 per Share, compared to a decrease of
2.15%, from $18.16 to $17.77 during the six months ended July 31, 2021. The Trust’s NAV per share decreased slightly more than the
price per ounce of gold on a percentage basis due to the Sponsor’s fees, which were 44,474 Shares in total for the six months ended
July 31, 2022, compared with 32,984 Shares paid as Sponsor’s fees in the six months ended July 31, 2021. The NAV per share of $19.81
on March 8, 2022 was the highest during the six months ended July 31, 2022, compared with a low of $16.51 on July 14, 2022.
The change in net assets from operations for the
six months ended July 31, 2022 was $(20,906,384), resulting from the Sponsor’s fees of $(803,310) and a net realized and unrealized
loss on investment in gold bullion of $(20,103,074). In comparison, the change in net assets from operations for the six months ended
July 31, 2021 was $(9,950,163), resulting from the Sponsor’s fees of $(572,240) and a net realized and unrealized loss on investment
in gold bullion of $(9,377,923).
Other than the Sponsor’s fee, the Trust
had no expenses during the quarter ended July 31, 2022 or the quarter ended July 31, 2021.
For the calendar quarter ended June 30 2022, the
Marketing Agent earned a fee of $112,310 which was paid by the Sponsor on August 29, 2022; since the initiation of the Marketing Agent’s
efforts on behalf of the Trust on October 22, 2015, a total of $578,666 in Fees has been paid, representing 0.8047% of the maximum fee
potentially payable to the Marketing Agent pursuant to the Marketing Agent Agreement. Effective July 24, 2020, the Sponsor and the
Marketing Agent amended the fee structure under the Marketing Agent Agreement, however the financial obligations created thereunder remain
the obligations of the Sponsor of the Trust, any fees payable thereunder remain payable from the Sponsor’s fee and the cap on the
fees payable to the Marketing Agent remains unchanged.
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 July
31, 2022 and July 31, 2021, 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.