01—Abstract
Summary
Summary of the 10-K filed November 26, 2013. Cited figures are marked; the original filing is the authoritative source.
SPDR Gold Trust's fiscal 2013 10-K (year ended September 30, 2013) shows a sharp reversal from the prior year's gold-driven gains.
Gold held by the Trust fell from roughly 42.8 million ounces to 29.2 million ounces, driven by heavy net redemptions of 18.3 million ounces against 4.9 million ounces of creations. The Trust's gold investment at cost fell from $50.7 billion to $35.8 billiona, and the market value of its gold holdings fell from $76.0 billion to $38.8 billion. Shares outstanding dropped from 437.9 million to 301.6 million, and the redemption value per share fell 48.8% to $128.06 from $172.16.
The London PM fix ended the year at $1,326.50b, versus $1,776.00 a year earlier, and the year's trading range was $1,192.00 to $1,791.75. For the year, the Trust reported a net gain from operations of $4.5 billion ($11.75 per weighted-average share), versus $2.4 billion in fiscal 2012. This gain is almost entirely realized gain on gold distributed for share redemptions ($4.68 billion), not operating income.
Expenses were $229.7 millionc, roughly 0.4% of average assets, with sponsor and marketing agent fees each at $86.2 million, custody fees at $37.8 million, and trustee fees capped at $2 million. The Trust holds no cash, derivatives, or debt, and its gold is held 100% allocated in London by HSBC. Management and KPMG concluded that internal controls were effective.
For investors, the key points are that the Trust is a passive vehicle whose share count and gold holdings decline over time because gold is sold to pay expenses, and that the share price tracks gold closely (NAV per share was about 0.04%d below the value of the gold per share). The filing also highlights risks from custodian and subcustodian concentration, unallocated-gold exposure during creation and redemption, and the potential for large official-sector gold sales.
02—Key points
Key Highlights
- Net redemptions were heavy: 187.4 million shares (1,874 Baskets) were redeemed against 51.1 million created, cutting shares outstanding 31% to 301.6 million and gold holdings by about 13.6 million ounces to 29.2 million ounces.
- Net gain from operations was $4.51 billion ($11.75 per share) versus $2.41 billion in FY2012. Almost all of it is unrealized-to-realized gold price gain on redemptions ($4.68 billion), while gains on gold sold to pay expenses were only $52.4 million.
- Gold price fell sharply: the London PM fix closed at $1,326.50 on September 30, 2013, down from $1,776.00, and the year's low was $1,192.00 on June 28, 2013. Redemption value per share dropped 48.8% to $128.06.
- Expenses were $229.7 million, mainly sponsor fees ($86.2M), marketing agent fees ($86.2M), and custody fees ($37.8M). Expenses are accrued daily against NAV, with the sponsor and marketing agent fee waiver applying only when expenses exceed 0.40% of ANAV.
- The Trust holds only allocated London gold (29.2M ounces with a market value of $38.8B), with no cash, derivatives, or debt. HSBC is the sole custodian, and no subcustodians were used during the three years ended September 30, 2013.
- Shareholders' deficit narrowed to $(2.98) billion from $(25.29) billion, reflecting the accounting treatment of redeemable shares at redemption value rather than a true equity deficit.
- Risk disclosures cover custodian insolvency and unallocated-gold segregation, reliance on subcustodians without written contracts, and the possibility of large official-sector or crisis-driven gold sales that could depress prices.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed November 26, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Gross Profit | $52.41M$87.96M | −40.4% |
| Operating Expenses | $229.74M$271.77M | −15.5% |
| Operating Income | -$229.74M— | — |
| Net Income | $4.51B$2.41B | +87.2% |
| EPS (Basic) | $11.75$5.71 | +105.8% |
| Shares Outstanding (Basic) | 383.42M421.63M | −9.1% |
05—Questions
Frequently Asked Questions
Why did the Trust report a $4.5 billion net gain when gold prices fell during the year?
The reported gain reflects the gold price movement between the time gold was recorded at average cost and the time it was distributed to redeeming Authorized Participants. Redemptions of 18.3 million ounces at higher historical cost basis generated a $4.68 billion realized gain. This gain does not represent cash income, and the Trust distributes gold rather than cash, so the Trust had no net cash flow from operations.
Does the Trust pay dividends or generate income for shareholders?
No. The Trust does not generate income and holds no interest-bearing assets. Distributions are permitted only if cash exceeds anticipated expenses by more than $0.01 per share or upon liquidation. Shareholders are instead exposed to the change in the gold price, less the gradual reduction in the gold per share caused by gold sales to pay expenses.
How does the Trust's expense structure affect shareholders over time?
Ordinary expenses accrue daily at roughly 0.40% per year of net asset value, including a 0.15% sponsor fee, a 0.15% marketing agent fee, a custody fee of 0.10% on the first 4.5 million ounces and 0.06% above that, and a trustee fee of 0.02% (capped at $2 million). The sponsor and marketing agent waive expenses above 0.40% per year, but this waiver is not enough to hold costs at 0.40% if gold holdings fall below about $1.2 billion. Gold is sold to cover these costs, so each share represents slightly less gold over time.
What are the main risks of holding Shares in custody and redemption operations?
Gold is held by HSBC in London in allocated form, but unallocated gold in transit during creations and redemptions is not segregated and would be an unsecured claim if the custodian became insolvent. Subcustodians are not bound by written contracts, and the Trust may have limited recourse against them. The Trust does not insure its gold, and the custodian's insurance does not cover the full amount of gold held.
How closely does the Shares' trading price track the price of gold?
Closely. At fiscal year-end, the redemption value per share was $128.06 and the NAV per share was about 0.04% below the market value of the gold each share represents. Trading prices can deviate from NAV, with wider premiums or discounts during periods when COMEX is closed and NYSE Arca is still trading, roughly 1:30 PM to 8:00 PM New York time.
06—Continue