Item 1A. Risk Factors
Item
1A. Risk Factors
Before
making an investment decision, you should consider carefully the risks described below, as well as the other information included in
this prospectus. Shareholders should also refer to the other information included in this report, including the Trust’s financial
statements and the related notes.
Because
the Shares are created to reflect the price of the gold held by the Trust, the market price of the Shares will be as unpredictable as
the price of gold has historically been. This creates the potential for losses, regardless of whether you hold Shares for the short-,
mid- or long-term.
Shares
are created to reflect, at any given time, the market price of gold owned by the Trust at that time less the Trust’s expenses and
liabilities. Because the value of Shares depends on the price of gold, it is subject to fluctuations similar to those affecting gold
prices. The price of gold has fluctuated widely over the past several years. If gold markets continue to be characterized by the wide
fluctuations that they have shown in the past several years, the price of the Shares will change widely and in an unpredictable manner.
This exposes your investment in Shares to potential losses if you need to sell your Shares at a time when the price of gold is lower
than it was when you made your investment in Shares. Even if you are able to hold Shares for the mid- or long-term you may never realize
a profit, because gold markets have historically experienced extended periods of flat or declining prices.
Following
an investment in Shares, several factors may have the effect of causing a decline in the prices of gold and a corresponding decline in
the price of Shares. Among them:
●
Large
sales, including those by the official sector (government, central banks and related institutions), which own a significant portion
of the aggregate world holdings. If one or more of these institutions decides to sell in amounts large enough to cause a decline
in world gold prices, the price of the Shares will be adversely affected.
●
A
significant increase in gold hedging activity by gold producers. Should there be an increase in the level of hedge activity of gold
producing companies, it could cause a decline in world gold prices, adversely affecting the price of the Shares.
●
A
significant change in the attitude of speculators and investors towards gold. Should the speculative community take a negative view
towards gold, it could cause a decline in world gold prices, negatively impacting the price of the Shares. Attitudes towards gold
could be influenced by:
●
Investors’
expectations regarding future inflation rates;
●
Currency
exchange rate volatility;
●
Interest
rate volatility; and
●
Unexpected
political, economic, global or regional incidents.
Conversely,
several factors may trigger a temporary increase in the price of gold prior to your investment in the Shares. If that is the case, you
will be buying Shares at prices affected by the temporarily high prices of gold, and you may incur losses when the causes for the temporary
increase disappear.
The
amount of gold represented by each Share will decrease over the life of the Trust due to the sales of gold necessary to pay the Sponsor’s
Fee and Trust expenses. Without increases in the price of gold sufficient to compensate for that decrease, the price of the Shares will
also decline and you will lose money on your investment in Shares.
Although
the Sponsor has agreed to assume all organizational and certain ordinary expenses incurred by the Trust, not all Trust expenses have
been assumed by the Sponsor. For example, any taxes and other governmental charges that may be imposed on the Trust’s property
will not be paid by the Sponsor. As part of its agreement to assume some of the Trust’s ordinary administrative expenses, the Sponsor
has agreed to pay legal fees and expenses of the Trust not in excess of $100,000 per annum. Any legal fees and expenses in excess of
that amount will be the responsibility of the Trust.
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Because
the Trust does not have any income, it needs to sell gold to cover expenses not assumed by the Sponsor. The Trust may also be subject
to other liabilities (for example, as a result of litigation) which have also not been assumed by the Sponsor. The only source of funds
to cover those liabilities will be sales of gold held by the Trust. Even if there are no expenses other than those assumed by the Sponsor,
and there are no other liabilities of the Trust, the Trustee will still need to sell gold to pay the Sponsor’s Fee. The result
of these sales is a decrease in the amount of gold represented by each Share. New deposits of gold, received in exchange for new Shares
issued by the Trust, do not reverse this trend.
A
decrease in the amount of gold represented by each Share results in a decrease in its price even if the price of gold has not changed.
To retain the Share’s original price, the price of gold has to increase. Without that increase, the lesser amount of gold represented
by the Share will have a correspondingly lower price. If these increases do not occur, or are not sufficient to counter the lesser amount
of gold represented by each Share, you will sustain losses on your investment in Shares.
An
increase in the Trust expenses not assumed by the Sponsor, or the existence of unexpected liabilities affecting the Trust, will force
the Trustee to sell larger amounts of gold, and will result in a more rapid decrease of the amount of gold represented by each Share
and a corresponding decrease in its value.
Future
governmental decisions may have significant impact on the price of gold, which may result in a significant decrease or increase in the
value of the net assets and the net asset value of the Trust.
Generally,
gold prices reflect the supply and demand of available gold. Governmental decisions, such as the executive order issued by the President
of the United States in 1933 requiring all persons in the United States to deliver gold to the Federal Reserve or the abandonment of
the gold standard by the United States in 1971, have been viewed as having significant impact on the supply and demand of gold and the
price of gold. Future governmental decisions may have an impact on the price of gold, and may result in a significant decrease or increase
in the value of the net assets and the net asset value of the Trust. Further regulations applicable to U.S. banks and non-U.S. bank entities
operating in the U.S. with respect to their trading in physical commodities, such as precious metals, may further impact the price of
gold in the U.S.
The
Trust is a passive investment vehicle. This means that the value of your Shares may be adversely affected by Trust losses that, if the
Trust had been actively managed, it might have been possible to avoid.
The
Trustee does not actively manage the gold held by the Trust. This means that the Trustee does not sell gold at times when its price is
high, or acquire gold at low prices in the expectation of future price increases. It also means that the Trustee does not make use of
any of the hedging techniques available to professional gold investors to attempt to reduce the risks of losses resulting from price
decreases. Any losses sustained by the Trust will adversely affect the value of your Shares.
The
price received upon the sale of Shares may be less than the value of the gold represented by them.
The
result obtained by subtracting the Trust’s expenses and liabilities on any day from the price of the gold owned by the Trust on
that day is the net asset value of the Trust which, when divided by the number of Shares outstanding on that day, results in the NAV
per Share.
Shares
may trade at, above or below their NAV. The NAV will fluctuate with changes in the market value of the Trust’s assets. The trading
prices of Shares will fluctuate in accordance with changes in their NAVs as well as market supply and demand. The amount of the discount
or premium in the trading price relative to the NAV may be influenced by non-concurrent trading hours between the major gold markets
and the Exchange. While the Shares will trade on the Exchange until 4:00 p.m. (New York time), liquidity in the market for gold will
be reduced after the close of the major world gold markets, including London, Zurich and COMEX. As a result, during this time, trading
spreads, and the resulting premium or discount on Shares, may widen.
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An
investment in the Trust may be adversely affected by competition from other methods of investing in gold.
The
Trust competes with other financial vehicles, including traditional debt and equity securities issued by companies in the gold industry
and other securities backed by or linked to gold, direct investments in gold and investment vehicles similar to the Trust. Market and
financial conditions, and other conditions beyond the Sponsor’s control, may make it more attractive to invest in other financial
vehicles or to invest in gold directly, which could affect the market capitalization of the Trust and reduce the NAV. To the extent existing
exchange traded funds, or ETFs, or other exchange traded vehicles tracking gold markets represent a significant proportion of demand
for physical gold bullion, large redemptions of the securities of these ETFs or other exchange traded vehicles could negatively affect
physical gold bullion prices and the price and NAV.
The
Trust may be forced to sell gold earlier than anticipated if expenses are higher than expected.
The
Trust may be forced to sell physical gold earlier than anticipated if the Trust’s expenses are higher than estimated. Such accelerated
sales may result in a reduction of the NAV and the value of the Shares.
Because
the Trust is not a diversified investment, it may be more volatile than other investments.
An
investment in the Trust is not intended as a complete investment plan. Because the Trust principally only holds physical gold, an investment
in the Trust may be more volatile than an investment in a more broadly diversified portfolio. Accordingly, the NAV may be more volatile
than another investment vehicle with a more broadly diversified portfolio and may fluctuate substantially over time. An investment in
the Trust may be deemed speculative and is not intended as a complete investment program; therefore investors should review closely the
objective and strategy, the investment and operating restrictions and the redemption provisions of the Trust as outlined herein and familiarize
themselves with the risks associated with an investment in the Trust.
The
liquidation of the Trust may occur at a time when the disposition of the Trust’s gold will result in losses to investors in Shares.
The
Trust may have a limited duration. If certain events occur, at any time, the Trustee will have to terminate the Trust. See “Description
of the Shares and the Trust Agreement—Amendment and Termination” for more information about the termination of the Trust,
including when events outside the control of the Sponsor, the Trustee or the Shareholders may prompt the Trust’s termination.
Upon
termination of the Trust, the Trustee will sell gold in the amount necessary to cover all expenses of liquidation, and to pay any outstanding
liabilities of the Trust. The remaining gold will be distributed among Authorized Participants surrendering Shares. Any gold remaining
in the possession of the Trustee after 60 days may be sold by the Trustee and the proceeds of the sale will be held by the Trustee until
claimed by any remaining holders of Shares. Sales of gold in connection with the liquidation of the Trust at a time of low prices will
likely result in losses, or adversely affect your gains, on your investment in Shares.
There
may be situations where an Authorized Participant is unable to redeem a Basket of Shares. To the extent the value of gold decreases,
these delays may result in a decrease in the value of the gold the Authorized Participant will receive when the redemption occurs, as
well as a reduction in liquidity for all Shareholders in the secondary market.
Although
Shares surrendered by Authorized Participants in Basket-size aggregations are redeemable in exchange for the underlying amount of gold,
redemptions may be suspended during any period while regular trading on the Exchange is suspended or restricted, or in which an emergency
exists that makes it reasonably impracticable to deliver, dispose of, or evaluate gold. If any of these events occurs at a time when
an Authorized Participant intends to redeem Shares, and the price of gold decreases before such Authorized Participant is able again
to surrender Shares for redemption, such Authorized Participant will sustain a loss with respect to the amount that it would have been
able to obtain in exchange for the gold received from the Trust upon the redemption of its Shares, had the redemption taken place when
such Authorized Participant originally intended it to occur. As a consequence, Authorized Participants may reduce their trading in Shares
during periods of suspension, decreasing the number of potential buyers of Shares in the secondary market and, therefore, decreasing
the price a Shareholder may receive upon sale.
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The
liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants.
In
the event that one or more Authorized Participants that have substantial interests in Shares withdraw from participation, the liquidity
of the Shares will likely decrease which could adversely affect the market price of the Shares and result in your incurring a loss on
your investment.
The
Trust is an “emerging growth company” and it cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make the Shares less attractive to investors.
The
Trust is an “emerging growth company” as defined in the JOBS Act. For as long as the Trust continues to be an emerging growth
company it may choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies
but not to emerging public companies, which include, among other things:
●
Exemption
from the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act;
●
Reduced
disclosure obligations regarding executive compensation in the Trust’s periodic reports;
●
Exemption
from the requirements of holding non-binding shareholder votes on executive compensation arrangements; and
●
Exemption
from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and, unless otherwise determined by the
SEC, any new audit rules adopted by the Public Company Accounting Oversight Board.
The
Trust could be an emerging growth company until the last day of the fiscal year following the fifth anniversary after its initial public
offering, or until the earliest of (1) the last day of the fiscal year in which it has annual gross revenue of $1 billion or more, (2)
the date on which it has, during the previous three year period, issued more than $1 billion in non-convertible debt or (3) the date
on which it is deemed to be a large accelerated filer under the federal securities laws. The Trust will qualify as a large accelerated
filer as of the first day of the first fiscal year after it has (A) more than $700 million in outstanding equity held by nonaffiliates
and (B) been public for at least 12 months. The value of the Trust’s outstanding equity will be measured each year on the last
day of its second fiscal quarter.
Under
the JOBS Act, emerging growth companies are also permitted to elect to delay adoption of new or revised accounting standards until companies
that are not subject to periodic reporting obligations are required to comply, if such accounting standards apply to non-reporting companies.
However, the Trust has chosen to opt out of this extended transition period for complying with new or revised accounting standards. Section
107 of the JOBS Act provides that the decision to opt out of the extended transition period for complying with new or revised accounting
standards is irrevocable.
The
Trust cannot predict if investors will find an investment in the Trust less attractive if it relies on these exemptions.
Authorized
Participants with large holdings may choose to terminate the Trust.
Holders
of 75% of the Shares have the power to terminate the Trust. This power may be exercised by a relatively small number of holders. If it
is so exercised, investors who wished to continue to invest in gold through the vehicle of the Trust will have to find another vehicle,
and may not be able to find another vehicle that offers the same features as the Trust.
The
lack of an active trading market for the Shares may result in losses on your investment at the time of disposition of your Shares.
Although
Shares are listed for trading on the Exchange, you should not assume that an active trading market for the Shares will develop or be
maintained. If you need to sell your Shares at a time when no active market for them exists, such lack of an active market will most
likely adversely affect the price you receive for your Shares (assuming you are able to sell them).
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If
the process of creation and redemption of Baskets encounters any unanticipated difficulties, the possibility for arbitrage transactions
intended to keep the price of the Shares closely linked to the price of gold may not exist and, as a result, the price of the Shares
may fall or otherwise diverge from NAV.
If
the processes of creation and redemption of Shares (which depend on timely transfers of gold to and by the Custodian) encounter any unanticipated
difficulties, potential market participants, such as the Authorized Participants and their customers, who would otherwise be willing
to purchase or redeem Baskets to take advantage of any arbitrage opportunity arising from discrepancies between the price of the Shares
and the price of the underlying gold may not take the risk that, as a result of those difficulties, they may not be able to realize the
profit they expect. If this is the case, the liquidity of the Shares may decline and the price of the Shares may fluctuate independently
of the price of gold and may fall or otherwise diverge from NAV.
As
an owner of Shares, you will not have the rights normally associated with ownership of other types of shares.
Shares
are not entitled to the same rights as shares issued by a corporation. By acquiring Shares, you are not acquiring the right to elect
directors, to receive dividends, to vote on certain matters regarding the issuer of your Shares or to take other actions normally associated
with the ownership of shares of a corporation. You will only have the limited rights described under “Description of the Shares
and the Trust Agreement.”
As
an owner of Shares, you will not have the protections normally associated with ownership of shares in an investment company registered
under the Investment Company Act of 1940, as amended, or the protections afforded by the Commodity Exchange Act of 1936, as amended.
The
Trust is not registered as an investment company for purposes of United States federal securities laws, and is not subject to regulation
by the SEC as an investment company. Consequently, the owners of Shares do not have the regulatory protections provided to investors
in registered investment companies. For example, the provisions of the Investment Company Act that limit transactions with affiliates,
prohibit the suspension of redemptions (except under certain limited circumstances) or limit sales loads, among others, do not apply
to the Trust.
The
Trust does not hold or trade in commodity futures contracts, “commodity interests”, or any other instruments regulated by
the CEA, as administered by the CFTC and the National Futures Association (the “NFA”). Furthermore, the Trust is not a commodity
pool for purposes of the CEA and the Shares are not “commodity interests”. Consequently, the Trustee and Sponsor are not
subject to registration as commodity pool operators or commodity trading advisors with respect to the Trust or the Shares. The owners
of Shares do not receive the CEA disclosure document and certified annual report required to be delivered by a registered commodity pool
operator or a commodity trading advisor with respect to the Trust, and the owners of Shares do not have the regulatory protections provided
to investors in commodity pools operated by registered commodity pool operators or advised by commodity trading advisors.
The
value of the Shares will be adversely affected if gold owned by the Trust is lost or damaged in circumstances in which the Trust is not
in a position to recover the corresponding loss.
The
Custodian is responsible to the Trust for loss or damage to the Trust’s gold only under limited circumstances. The agreements with
the Custodian contemplate that the Custodian will be responsible to the Trust only if it acts with negligence, fraud or in willful default
of its obligations under those agreements. The Custodian’s liability will not exceed the market value of the gold credited to the
Trust Unallocated Account and the Trust Allocated Account at the time such negligence, fraud or willful default is either discovered
by or notified to the Custodian (such market value calculated using the nearest available LBMA Gold Price PM following the occurrence
of such negligence, fraud or willful default), provided that, in the case of such discovery by or notification to the Custodian, the
Custodian notifies the Sponsor and the Trustee promptly after any discovery of such negligence, fraud or willful default. Furthermore,
the Custodian is not liable for any delay in performance, or for the non-performance, of any of its obligations under the Custody Agreements
by reason of any cause beyond the Custodian’s reasonable control, including any act of God or war or terrorism, any breakdown,
malfunction or failure of, or connected with, any communication, computer, transmission, clearing or settlement facilities, industrial
action, or acts, rules and regulations of any governmental or supra national bodies or authorities or any relevant regulatory or self-regulatory
organization.
In
addition, because the Custody Agreements are governed by English law, the holders of the Shares may have no rights against the Custodian
and any rights they may have against the Custodian will be different from, and may be more limited than, those that could have been available
to them under the laws of a different jurisdiction. The choice of English law to govern the Custody Agreements, however, is not expected
to affect any rights that the holders of the Shares may have against the Trust or the Trustee.
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Moreover,
the Trust may not be in a position to recover insurance proceeds in the event of any loss with respect to its gold. The Trust does not
insure its gold. The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate,
which does not cover the full amount of gold held in custody. The Trust is not a beneficiary of any such insurance and does not have
the ability to dictate the existence, nature or amount of coverage. Therefore, Shareholders cannot be assured that the Custodian will
maintain adequate insurance or any insurance with respect to the gold held by the Custodian on behalf of the Trust. The Custodian and
the Trustee do not require any direct or indirect subcustodians to be insured or bonded with respect to their custodial activities or
in respect of the gold held by them on behalf of the Trust. Consequently, a loss may be suffered with respect to the Trust’s gold
which is not covered by insurance and for which no person is liable in damages.
Any
loss of gold owned by the Trust will result in a corresponding loss in the net asset value of the Trust and it is reasonable to expect
that such loss will also result in a decrease in the value at which the Shares are traded on the Exchange.
Although
the relationship between the Custodian and the Trustee concerning the Trust’s allocated gold is expressly governed by English law,
a court hearing any legal dispute concerning that arrangement may disregard that choice of law and apply U.S. law, in which case the
ability of the Trust to seek legal redress against the Custodian may be frustrated.
The
obligations of the Custodian under the Custody Agreements are governed by English law. The Trust is a New York common law trust. Any
United States, New York or other court situated in the United States may have difficulty interpreting English law (which, insofar as
it relates to custody arrangements, is largely derived from court rulings rather than statute), London Bullion Market Association (LBMA)
rules or the customs and practices in the London custody market. It may be difficult or impossible for the Trust to sue the Custodian
in a United States, New York or other court situated in the United States. In addition, it may be difficult, time consuming and/or expensive
for the Trust to enforce in a foreign court a judgment rendered by a United States, New York or other court situated in the United States.
Shareholders
and Authorized Participants lack the right under the Custody Agreements to assert claims directly against the Custodian, which significantly
limits their options for recourse.
Neither
the Shareholders nor any Authorized Participant will have a right under the Custody Agreements to assert a claim of the Trustee against
the Custodian. Claims under the Custody Agreements may only be asserted by the Trustee on behalf of the Trust.
Gold
held in the Trust Unallocated Account and any Authorized Participant’s unallocated gold account will not be segregated from the
Custodian’s assets. If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized
Participant. In addition, in the event of the Custodian’s insolvency, there may be a delay and costs incurred in identifying the
gold bars held in the Trust Allocated Account.
Gold
which is part of a deposit for a purchase order or part of a redemption distribution will be held for a time in the Trust Unallocated
Account and, previously or subsequently in, the unallocated gold account of the purchasing or redeeming Authorized Participant. During
those times, the Trust and the Authorized Participant, as the case may be, will have no proprietary rights to any specific bars of gold
held by the Custodian and will each be an unsecured creditor of the Custodian with respect to the amount of gold held in such unallocated
accounts. In addition, if the Custodian fails to allocate the Trust’s gold in a timely manner, in the proper amounts or otherwise
in accordance with the terms of the Trust Unallocated Account Agreement, or if a subcustodian fails to so segregate gold held by it on
behalf of the Trust, unallocated gold will not be segregated from the Custodian’s assets, and the Trust will be an unsecured creditor
of the Custodian with respect to the amount so held in the event of the insolvency of the Custodian. In the event the Custodian becomes
insolvent, the Custodian’s assets might not be adequate to satisfy a claim by the Trust or the Authorized Participant for the amount
of gold held in their respective unallocated gold accounts.
In
the event of the insolvency of the Custodian, a liquidator may seek to freeze access to the gold held in all of the accounts held by
the Custodian, including the Trust Allocated Account. Although the Trust would retain legal title to the allocated gold bars, the Trust
could incur expenses in connection with obtaining control of the allocated gold bars, and the assertion of a claim by such liquidator
for unpaid fees could delay creations and redemptions of Baskets.
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From
time to time subcustodians may be employed by the Custodian to provide temporary custody and safekeeping of the Trust’s gold. The
obligations of any subcustodian of the Trust’s gold are not determined by contractual arrangements but by LBMA rules and London
bullion market customs and practices, which may prevent the Trust’s recovery of damages for losses on its gold custodied with subcustodians.
Gold
bars may be held by one or more subcustodians appointed by the Custodian, or employed by the subcustodians appointed by the Custodian,
until it is transported to the Custodian’s London vault premises. Under the Trust Allocated Account Agreement, except for an obligation
on the part of the Custodian to use commercially reasonable efforts to obtain delivery of the Trust’s gold bars from any subcustodians
appointed by the Custodian, the Custodian is not liable for the acts or omissions of its subcustodians unless the selection of such subcustodians
was made negligently or in bad faith. There are expected to be no written contractual arrangements between subcustodians that hold the
Trust’s gold bars and the Trustee or the Custodian, because traditionally such arrangements are based on the LBMA’s rules
and on the customs and practices of the London bullion market. In the event of a legal dispute with respect to or arising from such arrangements,
it may be difficult to define such customs and practices. The LBMA’s rules may be subject to change outside the control of the
Trust. Under English law, neither the Trustee nor the Custodian would have a supportable breach of contract claim against a subcustodian
for losses relating to the safekeeping of gold. If the Trust’s gold bars are lost or damaged while in the custody of a subcustodian,
the Trust may not be able to recover damages from the Custodian or the subcustodian.
Because
neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may temporarily hold the Trust’s
gold bars until transported to the Custodian’s London vault, failure by the subcustodians to exercise due care in the safekeeping
of the Trust’s gold bars could result in a loss to the Trust.
Under
the Trust Allocated Account Agreement, the Custodian agreed that it will hold all of the Trust’s gold bars in its own vault premises
except when the gold bars have been allocated in a vault other than the Custodian’s vault premises, and in such cases the Custodian
agreed that it will use commercially reasonable efforts promptly to transport the gold bars to the Custodian’s vault, at the Custodian’s
cost and risk. Nevertheless, there may be periods of time when some portion of the Trust’s gold bars will be held by one or more
subcustodians appointed by the Custodian or by a subcustodian of such subcustodian.
The
Custodian is required under the Trust Allocated Account Agreement to use reasonable care in appointing its subcustodians but otherwise
has no other responsibility in relation to the subcustodians appointed by it. These subcustodians may in turn appoint further subcustodians,
but the Custodian is not responsible for the appointment of these further subcustodians. The Custodian does not undertake to monitor
the performance by subcustodians of their custody functions or their selection of further subcustodians. The Trustee does not undertake
to monitor the performance of any subcustodian. Furthermore, the Trustee may have no right to visit the premises of any subcustodian
for the purposes of examining the Trust’s gold bars or any records maintained by the subcustodian, and no subcustodian will be
obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such
subcustodian.
In
addition, the ability of the Trustee to monitor the performance of the Custodian may be limited because under the Custody Agreements
the Trustee has only limited rights to visit the premises of the Custodian for the purpose of examining the Trust’s gold bars and
certain related records maintained by the Custodian.
The
value of the Shares will be adversely affected if any services provided to the Trust by the Sponsor, the Custodian or the Trustee are
suddenly or unexpectedly terminated.
Upon
the sudden or unexpected termination, resignation or removal of any service provider to the Trust, it is possible that a comparable replacement
service provider will be available or able to be appointed without material delay. Any such unavailability or delay could cause the Trustee
to expend assets of the Trust and consequently, the NAV of the Shares, in finding a replacement service provider.
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The
value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, or the Custodian as contemplated
in the Trust Agreement and the Custody Agreements.
Under
the Trust Agreement, the Sponsor and the Trustee each have the right to be indemnified from the Trust for any liability or expense it
incurs without gross negligence, bad faith, willful misconduct or willful malfeasance on its part. Similarly, the Custody Agreements
provide for indemnification of the Custodian by the Trust under certain circumstances. This means that it may be necessary to sell assets
of the Trust in order to cover losses or liability suffered by the Sponsor, the Trustee or the Custodian. Any sale of that kind would
reduce the net asset value of the Trust and the value of the Shares.
The
service providers engaged by the Trust may not carry adequate insurance to cover claims against them by the Trust, which could adversely
affect the value of net assets of the Trust.
The
Trustee, the Custodian and other service providers engaged by the Trust maintain such insurance as they deem adequate with respect to
their respective businesses. Investors cannot be assured that any of the aforementioned parties will maintain any insurance with respect
to the Trust’s assets held or the services that such parties provide to the Trust and, if they maintain insurance, that such insurance
is sufficient to satisfy any losses incurred by them in respect of their relationship with the Trust. Accordingly, the Trust will have
to rely on the efforts of the service provider to recover from their insurer compensation for any losses incurred by the Trust in connection
with such arrangements.
The
Sponsor and its affiliates manage other funds, including those that invest in physical gold bullion or other precious metals, and conflicts
of interest may occur, which may reduce the value of the net assets of the Trust, the NAV and the trading price of the Shares.
The
Sponsor or its affiliates and associates currently engage in, and may in the future engage, in the promotion, management or investment
management of other accounts, funds or trusts that invest primarily in physical gold bullion or other precious metals. Although officers
and professional staff of the Sponsor’s management intend to devote as much time to the Trust as is deemed appropriate to perform
their duties, the Sponsor’s management may allocate their time and services among the Trust and the other accounts, funds or trusts.
The Sponsor will provide any such services to the Trust on terms not less favorable to the Trust than would be available from a non-affiliated
party.
The
Sponsor and the Trustee may agree to amend the Trust Agreement without the consent of the Shareholders.
The
Sponsor and the Trustee may agree to amend the Trust Agreement, including to increase the Sponsor’s Fee, without Shareholder consent.
If an amendment imposes new fees and charges or increases existing fees or charges, including the Sponsor’s Fee (except for taxes
and other governmental charges, registration fees or other such expenses, or prejudices a substantial right of Shareholders), it will
become effective for outstanding Shares 30 days after notice of such amendment is given to registered owners. Shareholders that are not
registered owners (which most shareholders will not be) may not receive specific notice of a fee increase other than through an amendment
to the prospectus. Moreover, at the time an amendment becomes effective, by continuing to hold Shares, Shareholders are deemed to agree
to the amendment and to be bound by the Trust Agreement as amended without specific agreement to such increase (other than through the
“negative consent” procedure described above).
Shareholders
could incur a tax liability without an associated distribution of the Trust.
In
the normal course of business it is possible that the Trust could incur a taxable gain in connection with the sale of gold that is otherwise
not associated with a distribution. In the event that this occurs, Shareholders may be subject to tax due to the grantor trust status
of the Trust even though there is not a corresponding distribution from the Trust.
The
Trust may be negatively impacted by the effects of the spread of illnesses or other public health emergencies on the global economy and
the markets and service providers relevant to the performance of the Trust.
An
outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019
and has now been spread globally. This outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings
at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations,
supply chain disruptions, and lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern
and uncertainty. The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may
impact individual issuers and capital markets in ways that cannot necessarily be foreseen. Other infectious illness outbreaks that may
arise in the future could have similar impacts. Public health crises caused by the outbreak may exacerbate other pre-existing political,
social and economic risks in certain countries or globally.
26
The
COVID-19 outbreak will have serious negative effects on social, economic and financial systems, including significant uncertainty and
volatility in the financial markets. For instance, the suspension of operations of mines, refineries and vaults that extract, produce
or store gold, restrictions on travel that delay or prevent the transportation of gold, and an increase in demand for gold may disrupt
supply chains for gold, which could cause secondary market spreads to widen and compromise our ability to make settlements on time. Any
inability of the Trust to issue or redeem Shares or the Custodian or any sub-custodian to receive or deliver gold as a result of the
outbreak will negatively affect the Trust’s operations.
The
duration of the outbreak and its effects cannot be determined with certainty. A prolonged outbreak could result in an increase of the
costs of the Trust, affect liquidity in the market for gold as well as the correlation between the price of the Shares and the net asset
value of the Trust, any of which could adversely affect the value of your Shares. In addition, the outbreak could also impair the information
technology and other operational systems upon which the Trust’s service providers, including the Sponsor, the Trustee and the Custodian,
rely, and could otherwise disrupt the ability of employees of the Trust’s service providers to perform essential tasks on behalf
of the Trust. Governmental and quasi-governmental authorities and regulators throughout the world have in the past responded to major
economic disruptions with a variety of fiscal and monetary policy changes, including, but not limited to, direct capital infusions into
companies, new monetary programs and lower interest rates. An unexpected or quick reversal of these policies, or the ineffectiveness
of these policies, is likely to increase volatility in the market for gold, which could adversely affect the price of the Shares.
Further,
the outbreak could interfere with or prevent the determination of the applicable benchmark price, which the Trustee uses to value the
gold held by the Trust and calculate the net asset value of the Trust. The outbreak could also cause the closure of futures exchanges,
which could eliminate the ability of Authorized Participants to hedge purchases of Baskets, increasing trading costs of Shares and resulting
in a sustained premium or discount in the Shares. Each of these outcomes would negatively impact the Trust.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Not
applicable.
Item
3. Legal Proceedings
None.
Item
4. Mine Safety Disclosures
Not
applicable.
27
PART
II
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.