01—Abstract
Summary
Summary of the 10-K filed March 1, 2021. Cited figures are marked; the original filing is the authoritative source.
iShares Gold Trust (IAU) ended 2020 with net assets of $31.92 billiona, up from $17.63 billion a year earlier, an increase of about 81%.
Growth came mainly from net share creation: 559.3 million net new shares were issued (719.3 million created, 160.0 million redeemed), taking shares outstanding to 1,770,450,000. Net asset value per share rose 23.83%, from $14.56 to $18.03b, tracking the 24.16% rise in the LBMA Gold Price AM to $1,891.10. The Trust reported net income of $4.80 billion for 2020, driven by a $4.37 billion unrealized gain on gold bullion and $496 million of realized gains on gold distributed for redemptions, partly offset by $65.4 million in Sponsor's fees.
The central structural point for investors is that the Trust has no income and funds its 0.25%c annual Sponsor's fee by selling gold, so each share represents a gradually shrinking amount of gold. Holdings fell to about 16.88 million ounces, and the Trust must sell gold to pay expenses, so per-share gold content declines unless the gold price rises enough to offset it. The Trust also carries concentration risk, since it holds only gold, and it is passive and unhedged.
Shares can trade at a premium or discount to NAV, and shareholders have limited legal recourse against the custodian, which operates under English law. Gold is valued at the LBMA Gold Price PM, and the Trust reports no material legal proceedings and an effective internal control assessment audited by PricewaterhouseCoopers LLP with no critical audit matters. The filing also documents that the Trust had approximately 163 DTC participating shareholders of record, paid no distributions in 2019 or 2020, and experienced a volatile price path during 2020, with NAV ranging from $14.08 in March to $19.73d in August.
Fourth-quarter redemptions totaled 56.5 million shares. Its primary risks are gold price movements, operational and custody risks, and the structural erosion of gold per share from fees.
02—Key points
Key Highlights
- Net assets reached $31.92 billion at December 31, 2020, up 81.06% from $17.63 billion in 2019.
- NAV per share rose 23.83% to $18.03, in line with the 24.16% increase in the LBMA Gold Price AM to $1,891.10.
- Net income was $4.80 billion, driven by a $4.37 billion unrealized gain on gold bullion and $496 million in realized gains.
- Net share creation was 559.3 million shares (719.3 million created, 160.0 million redeemed), bringing shares outstanding to 1.77 billion.
- The Sponsor's fee of 0.25% annually totaled $65.4 million in 2020 and is paid by selling gold, so gold per share steadily declines.
- The Trust holds only gold (about 16.88 million ounces, Level 1 fair value) and is passive and unhedged, so it carries full gold price exposure and concentration risk.
- No cash distributions were declared in 2019 or 2020, and the Trust has no obligation to make periodic distributions.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed March 1, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Operating Expenses | $65.44M$35.32M | +85.3% |
| Operating Income | -$65.44M-$35.32M | −85.3% |
| Net Income | $4.80B$2.28B | +111.1% |
| EPS (Basic) | $6.24$4.30 | +45.1% |
05—Questions
Frequently Asked Questions
How does the Trust make money for shareholders, and does it pay dividends?
The Trust earns no income. Its value comes entirely from changes in the price of gold held in it. The Trust declared no cash distributions in 2019 or 2020 and has no obligation to make periodic distributions.
Why does the amount of gold per share decrease over time?
The Sponsor's fee of 0.25% per year is paid by selling gold, and this selling reduces the gold backing each share. Unless the gold price rises enough to offset this, the share price will decline relative to the gold price. Creating new shares does not reverse this effect.
Can shares trade at a price different from the value of the gold they represent?
Yes. Shares may trade at a premium or discount to NAV. Trading hours differ between NYSE Arca and the major gold markets, and liquidity can be reduced after the London, Zurich and COMEX markets close, which can widen spreads. Authorized Participants' arbitrage through creations and redemptions is intended to limit these gaps but may not always work.
What are the main risks to the custody of the Trust's gold, and what recourse do shareholders have?
JPMorgan Chase Bank N.A. (London branch) holds the gold. Its liability is limited to negligence, fraud or willful default, and it is governed by English law. The Trust does not insure its gold, and shareholders have no direct right to claim against the custodian. Only the Trustee can bring claims on the Trust's behalf.
How did the COVID-19 pandemic affect the Trust in 2020?
The filing says the pandemic disrupted gold mining, refining and transport, and could widen secondary market spreads and delay settlements. Gold prices were volatile, with NAV falling to $14.08 in March 2020 and peaking at $19.73 in August. The Trust reported no operational disruptions in its financial statements, and its internal controls were assessed as effective.
06—Continue