01—Abstract
Summary
Summary of the 10-K filed February 29, 2016. Cited figures are marked; the original filing is the authoritative source.
iShares Gold Trust (IAU) ended 2015 with net asset value of $5.21 billiona, down from $6.21 billion at year-end 2014, a 16.15% decline.
The drop was driven mainly by the fall in gold prices, with the LBMA/London AM benchmark falling from $1,199.25 to $1,062.25b (about 11.4%). NAV per Share fell 11.71%, from $11.61 to $10.25, and the Trust reported a net loss of $762.1 million, or $1.40 per Share, for the year. Shares outstanding declined from 535.4 million to 508.1 million, as 99.35 million Shares were redeemed and 72.05 million were created.
The Trust is a passive, grantor-trust vehicle that holds physical gold custodied by JPMorgan in London, New York and Toronto, and it does not hedge or actively manage its holdings. Its only ordinary expense is the Sponsor's fee of 0.25% per year, which totaled $15.2 millionc in 2015. Because the Trust has no income, that fee is covered by selling gold, so each Share represents a slowly shrinking amount of gold unless the gold price rises enough to offset the sales.
The filing also notes that the benchmark changed on March 20, 2015, when the London PM Fix was replaced by the IBA-administered LBMA Gold Price PM, which became FCA-regulated in April 2015. The filing received an unqualified audit opinion from PricewaterhouseCoopers, which also found effective internal control over financial reporting. Investors should note the structural risks in the filing, including limited recourse against the custodian, the Trust's exposure to the gold price with no hedging, and the potential for Shares to trade at a discount or premium to NAV, particularly outside NYSE Arca and major gold market hours.
02—Key points
Key Highlights
- NAV fell 16.15% to $5.21 billion at December 31, 2015, and NAV per Share declined 11.71% to $10.25, closely tracking the roughly 11.4% drop in gold prices.
- Net loss of $762.1 million ($1.40 per Share) was driven by a $659.1 million unrealized loss on gold bullion and an $87.8 million net realized loss, mostly from gold distributed to redeem Shares.
- Net share redemptions: 99.35 million Shares redeemed versus 72.05 million created, reducing Shares outstanding from 535.4 million to 508.1 million.
- Sponsor's fee of 0.25% annually cost $15.2 million in 2015, funded by selling gold, which steadily reduces the gold backing each Share.
- Benchmark change: the London PM Fix was replaced by the LBMA Gold Price PM on March 20, 2015, with the new auction-based price regulated by the UK FCA from April 1, 2015.
- Passive structure with no hedging; the Trust is a grantor trust for U.S. tax purposes, and gold sales and redemptions carry tax consequences that are passed through to shareholders, with collectibles gains taxed at up to 28% for individuals.
- Clean audit: PricewaterhouseCoopers issued an unqualified opinion and found effective internal control over financial reporting as of December 31, 2015.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 29, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Operating Expenses | $15.25M$16.63M | −8.3% |
| Operating Income | -$15.25M-$16.63M | +8.3% |
| Net Income | -$762.12M-$42.42M | −1696.7% |
| EPS (Basic) | $-2.80$-0.16 | −1650.0% |
| Shares Outstanding (Basic) | 271.70M271.16M | +0.2% |
05—Questions
Frequently Asked Questions
Why did the value of IAU shares fall in 2015?
The main driver was the decline in gold prices. The LBMA/London AM price fell from $1,199.25 at year-end 2014 to $1,062.25 at year-end 2015, and NAV per Share fell 11.71%, from $11.61 to $10.25. Because the Trust holds only gold and does not hedge, its value moves almost one-for-one with the metal, less the 0.25% annual Sponsor's fee.
Does the 0.25% Sponsor's fee erode the amount of gold behind each share?
Yes. The Trust has no income, so it sells gold to pay the Sponsor's fee and other expenses. That reduces the gold backing each Share over time. New deposits from creations do not reverse this effect. A Share's price only holds steady if the gold price rises enough to offset the gold sold.
Can individual investors create or redeem IAU shares directly?
No. Creations and redemptions are made only in Baskets of 50,000 Shares through Authorized Participants, which are registered broker-dealers. Most investors buy and sell IAU on NYSE Arca, where the price can trade at a premium or discount to NAV, especially when the major gold markets are closed.
What happens to my investment if the custodian loses gold?
The custodian, JPMorgan Chase Bank N.A. (London branch), is liable only for losses caused by its negligence, fraud or willful default, and it has no obligation to replace lost gold. Any loss of gold lowers NAV and therefore the value of the Shares. The custodian's insurance is held for its own benefit, not the Trust's.
06—Continue