01—Abstract
Summary
Summary of the 10-K filed February 28, 2018. Cited figures are marked; the original filing is the authoritative source.
iShares Gold Trust (IAU) ended 2017 with net assets of $10.15 billiona, up 38.81% from $7.31 billion at December 31, 2016.
The increase was driven mainly by net share creations rather than trading gains alone: 228.25 million shares were created and 68.35 million redeemed, lifting shares outstanding from 655.0 million to 814.9 million. Net asset value per share rose 11.56% to $12.45b, tracking the 11.85% increase in the LBMA Gold Price AM to $1,296.50 per ounce. Net income for the year was $881.9 million, consisting almost entirely of an $881.3 million unrealized gain on gold holdings, and the Trust reported no distributions to shareholders.
The Trust is a passive, grantor-trust vehicle with no active management or hedging. Its only ordinary expense is the Sponsor's fee of 0.25% annually, which totaled $21.6 millionc in 2017 and is paid by selling gold, so each share represents a slowly shrinking amount of gold absent price gains. Gold is held by JPMorgan Chase Bank N.A.
(London) as custodian, with the custodian's liability limited to negligence, fraud, or willful default, and the Trust carries no insurance of its own. Benchmark pricing moved from the discontinued London PM Fix to the LBMA Gold Price PM in March 2015, which the filing flags as a source of potential valuation and transition risk.
For investors, the filing shows a fund that closely mirrors the spot gold price, with the main risks being gold price volatility, the cumulative drag from the fee-driven gold sales, custodial and benchmark concentration, and the limited legal recourse available to shareholders. Shares trade on NYSE Arca under IAU and can trade at a premium or discount to NAV, particularly outside major gold-market trading hours.
02—Key points
Key Highlights
- Net assets rose 38.81% to $10.15 billion at year-end 2017, driven mainly by net inflows of 159.9 million shares.
- NAV per share increased 11.56% to $12.45, closely tracking the 11.85% rise in the LBMA Gold Price AM to $1,296.50/oz.
- Net income of $881.9 million was almost entirely an unrealized gain on gold bullion ($881.3 million); the Trust had no other material income.
- Sponsor's fee of 0.25% annually totaled $21.6 million in 2017 and is paid by selling gold, steadily reducing the gold backing each share.
- Holdings of 7.83 million ounces of gold are custodied by JPMorgan Chase Bank N.A. (London) and classified as Level 1 fair value assets.
- Shareholders of record were approximately 521,157; no cash distributions were declared in 2017 or 2016.
- The Trust has no insurance on its gold, and custodian liability is limited to negligence, fraud, or willful default.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Operating Expenses | $21.63M$20.31M | +6.5% |
| Operating Income | -$21.63M-$20.31M | −6.5% |
| Net Income | $881.86M$308.74M | +185.6% |
| EPS (Basic) | $2.46$0.92 | +167.4% |
05—Questions
Frequently Asked Questions
How did the Trust perform in 2017?
Net assets grew 38.81% to $10.15 billion and NAV per share rose 11.56% to $12.45. Performance tracked the roughly 11.85% increase in the LBMA Gold Price AM, with the Sponsor's fee causing NAV to trail gold slightly in percentage terms.
Why does the number of gold ounces per share matter for investors?
The Sponsor's fee and any unassumed expenses are paid by selling gold, so each share represents a gradually smaller amount of gold over time. Shares only hold their value if the gold price rises enough to offset this decline, which the filing identifies as a key risk.
Can Shares trade at a price different from the gold value they represent?
Yes. Shares can trade at a premium or discount to NAV, particularly when the major gold markets are closed while NYSE Arca remains open until 4:00 p.m. New York time. Creation and redemption through Authorized Participants is intended to limit these gaps, but the filing notes that this mechanism is not guaranteed.
What protections do shareholders have if the gold is lost or mishandled?
Protection is limited. The custodian is liable only for losses caused by its negligence, fraud, or willful default, and the Trust does not insure its gold. Shareholders have limited legal recourse against the Trust, Trustee, Sponsor, or custodian, and the custodian agreement is governed by English law.
Is this investment regulated like a mutual fund?
No. The Trust is not registered under the Investment Company Act of 1940 and is not a commodity pool under the Commodity Exchange Act. Shareholders therefore do not receive the protections that apply to registered funds or commodity pools, such as limits on affiliate transactions or restrictions on suspending redemptions.
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