01—Abstract
Summary
Summary of the 10-K filed November 25, 2019. Cited figures are marked; the original filing is the authoritative source.
SPDR Gold Trust (GLD) reported its fiscal year ended September 30, 2019 in this Form 10-K, filed November 25, 2019.
The Trust holds physical gold bullion custodied by HSBC in London and issues Shares in Baskets of 100,000 Shares, with no derivatives and no active management. Its only recurring expense is the Sponsor fee of 0.40% of NAV, which totaled $135.2 milliona for the year, and the Trust funds it by selling gold monthly, so the share count and gold per share both decline over time absent creations. The key result for investors is the strong year for gold.
Net assets rose to $43.96 billionb from $28.32 billion, and net income was $7.25 billion, or $27.00 per share, compared with a loss of $2.62 billion in fiscal 2018. The NAV per Share increased from $112.35 to $140.00, a 24.61% total return at NAV (23.16% at market value). Gold holdings ended at 29.74 million ounces, valued at $1,485.30 per ounce on the LBMA Gold Price PM.
Net creations were strong, with 144.9 million Shares created and 83.0 million redeemed, leaving 314.0 million Shares outstanding versus 252.1 million a year earlier. The filing also highlights structural risks. The Trust is passive, so it cannot hedge, and it sells gold to pay expenses regardless of price.
Custody risk is significant: gold is held by a single custodian, HSBC, with no insurance by the Trust, limited Trustee oversight, and subcustodian arrangements governed by English law without written contracts. Unallocated gold balances would be unsecured claims in a custodian insolvency.
KPMG gave unqualified opinions on both the financial statements and internal controls, and it identified the existence of gold holdings as a critical audit matter. Shares may trade at a premium or discount to NAV, particularly when COMEX and NYSE Arca trading hours do not overlap.
02—Key points
Key Highlights
- Net income of $7.25 billion ($27.00 per share) for FY2019, a reversal from a $2.62 billion loss in FY2018, driven by a $6.79 billion net change in unrealized appreciation on gold.
- Net assets grew to $43.96 billion at September 30, 2019, up 55% from $28.32 billion a year earlier, as the gold price rose to $1,485.30 per ounce from $1,187.25.
- NAV per Share rose from $112.35 to $140.00, a total return at NAV of 24.61% (23.16% at market value).
- Shares outstanding increased to 314.0 million from 252.1 million; net creations of 61.9 million Shares were supported by 13.68 million ounces of gold deposited, against 7.84 million ounces redeemed.
- Sponsor fee of 0.40% of NAV totaled $135.2 million for the year and is the Trust's only recurring expense, funded by monthly gold sales that gradually reduce the gold backing each Share.
- All 29.74 million ounces of gold are held as allocated London Good Delivery bars by a single custodian, HSBC, with no subcustodian holdings; KPMG rendered unqualified audit and internal-control opinions.
- Risk disclosures emphasize the custody structure: the Trust does not insure its gold, its recourse against the custodian and subcustodians is limited under English law, and unallocated balances are unsecured claims in an insolvency.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed November 25, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Operating Expenses | $135.18M$136.30M | −0.8% |
| Net Income | $7.25B-$2.62B | +376.8% |
| EPS (Basic) | $27.00$-9.35 | +388.8% |
| Shares Outstanding (Basic) | 268.48M280.15M | −4.2% |
05—Questions
Frequently Asked Questions
How does the Trust's gold holding change over time, and why does that matter to investors?
The Trust sells gold as needed to pay its Sponsor fee of 0.40% of NAV, so the gold backing each Share gradually declines. In fiscal 2019 the Trust sold only about 98,300 ounces to cover expenses, while creations and redemptions moved far larger volumes. Holding a Share therefore does not preserve a fixed amount of gold, and the Share price is expected to drift lower relative to the gold price over time if gold is flat.
How did the Trust perform in fiscal 2019?
The Trust returned 24.61% at NAV and 23.16% at market value for the year ended September 30, 2019. The gain followed a 7.84% NAV loss in fiscal 2018. The gold price (LBMA Gold Price PM) rose from $1,187.25 to $1,485.30 per ounce over the period, with a fiscal-year high of $1,546.10 on September 4, 2019.
Who are the key service providers, and what protections do investors have?
World Gold Trust Services, LLC is the Sponsor, BNY Mellon is the Trustee, State Street Global Advisors Funds Distributors is the Marketing Agent, and HSBC Bank plc is the Custodian. Shareholders are not covered by the Investment Company Act of 1940 or the Commodity Exchange Act. They hold limited voting rights, cannot bring oppression or derivative actions, and cannot receive redemption distributions directly; only Authorized Participants can redeem in Baskets of 100,000 Shares.
What are the main risks to an investment in GLD?
The main risks are the gold price itself, since the Trust is passive and uses no hedging; custody risk, since gold is held by one custodian with limited insurance and limited Trustee oversight; the possibility that Shares trade at a discount or premium to NAV, particularly when COMEX and NYSE Arca trading hours do not overlap; and potential large-scale distress or official-sector sales of gold that could depress prices. Forced liquidation at a low gold price is also a risk.
What are the tax implications for U.S. individual investors?
The Trust is treated as a grantor trust, so shareholders are taxed as if they directly owned gold. Gains on gold held more than one year are generally taxed at a maximum rate of 28%, not the 20% long-term rate applicable to most other assets, and a 3.8% net investment income tax may also apply. Sales of gold by the Trust to pay expenses are taxable events to shareholders even though no cash is received. Investors should consult a tax advisor for their specific situation.
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