VanEck Merk Gold ETF 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This information should be read together with the financial statements and notes to the financial statements included in this Report. The discussion and analysis that follows may contain forward-looking statements, such as those that relate to future events or future performance. In some cases, such forward-looking statements can be identified by terminology such as “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. Neither the Sponsor, nor any other person assumes responsibility for the accuracy or completeness of forward-looking statements. Except as required by applicable law, neither the Trust nor the Sponsor is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsor’s expectations or predictions. Introduction The Trust is an investment trust formed on May 6, 2014 under New York law pursuant to the Trust Agreement. The Trust is not managed like a corporation or an active investment vehicle. It does not have any officers, directors, or employees and is administered by the Trustee pursuant to the Trust Agreement. The Trust is not registered as an investment company under the Investment Company Act of 1940, as amended, and is not required to register under such act. It will not hold or trade in commodity futures contracts, nor is it a commodity pool, or subject to regulation as a commodity pool operator or a commodity trading adviser in connection with issuing shares. After consideration of Financial Accounting Standards Topic 946, however, the Sponsor has concluded the Trust meets the fundamental characteristics of an investment company. In addition, while the Trust does not currently possess all of the typical characteristics of an investment company, it believes its activities are consistent with those of an investment company and will therefore apply the guidance in Financial Accounting Standards Topic 946, including disclosure of the financial support contractually required to be provided by an investment company to any of its investees. The Sponsor is responsible for, among other things, overseeing the performance of the Trustee and the Trust’s principal service providers, including the preparation of financial statements. The Trustee is responsible for the day-to-day administration of the Trust. The Initial Purchaser contributed 1,000 Ounces of gold in exchange for 100,000 Shares on May 6, 2014. At contribution, the value of the gold deposited with the Trust was based on the price of an Ounce of gold of $1,306.25. The Initial Purchaser is not affiliated with the Sponsor or the Trustee. The Trust’s primary objective is to provide investors with an opportunity to invest in gold through the Shares and be able to take delivery of physical gold in exchange for their Shares. The Trust’s secondary objective is for the Shares to reflect the performance of the price of gold less the expenses of the Trust’s operations. The Trust is not actively managed. The fiscal year end of the Trust is January 31st. Shares of the Trust trade on the NYSE Arca under the symbol “OUNZ.” 38 Investing in the Shares does not insulate the investor from certain risks, including price volatility. The following table illustrates the movement in the NAV of the Shares against the corresponding gold price (per 1/100 of an oz. of gold) since inception: NAV per Share vs. 1/100th Gold Fix from the Date of Inception to January 31, 2023. The divergence of the NAV per Share from the gold price over time reflects the cumulative effect of the Trust expenses that arise if an investment had been held since inception. Critical Accounting Policies In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management makes estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amount of revenue and expenses reported during the period. Actual results could differ from these estimates. The following is a summary of significant accounting policies followed by the Trust. Please refer to Note 2 to the Financial Statements included elsewhere in this Report for further discussion of our accounting policies. Valuation of Gold Various inputs are used in determining the fair value of the Trust’s assets or liabilities. These inputs are categorized into three broad levels. Level 1 includes unadjusted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market based inputs (including prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include management’s own assumptions in determining the fair value of investments. The Trust does not hold any derivative instruments, and its assets only consist of allocated gold bullion and gold receivable; representing gold covered by contractually binding orders for the creation of shares where the gold has not yet been transferred to the Trust’s account and, from time to time, cash, which is used to pay expenses. 39 London Gold Delivery Bars are held by the Custodian, on behalf of the Trust, at the London, United Kingdom vaulting premises. All gold is valued based on its Fine Ounce content, calculated by multiplying the weight of gold by its purity; the same methodology is applied independent of the type of gold held by the Trust; similarly, the value of up to 430 Fine Ounces of unallocated gold the Trust may hold is calculated by multiplying the number of Fine Ounces with the price of gold determined by the Trustee as follows. The Trustee determines the NAV of the Trust on each day that NYSE Arca is open for regular trading, as promptly as practical after 4:00 PM New York time. The NAV of the Trust is the aggregate value of the Trust’s assets less its estimated accrued but unpaid liabilities (which include accrued expenses). The Trustee computes the NAV per Share by dividing the net assets of the Trust by the number of the shares outstanding on the date the computation is made. In determining the Trust’s NAV, the Trustee values the gold held by the Trust based on the LBMA PM Gold Price. The Trustee also determines the NAV per Share. If on a day when the Trust’s NAV is being calculated the LBMA PM Gold Price for that day is not available, the Trustee will value the gold held by the Trust based on the LBMA AM Gold Price. If no fix is available for the day, the Trustee will value the Trust’s gold based on the most recently announced LBMA AM Gold Price or LBMA PM Gold Price. Prior to March 20, 2015, the Trustee utilized the daily fix of the price of a Fine Ounce of gold as performed by the five members of the London gold fix, which has now been replaced by the ICE Benchmark Administration as an independent third-party administrator. If the Sponsor determines that such price is inappropriate to use, it shall identify an alternate basis for evaluation to be employed by the Trustee. The Sponsor may instruct the Trustee to use a different publicly available price which the Sponsor determines to fairly represent the commercial value of the Trust’s gold. Ounces Fair Value Beginning balance as of February 1, 2022 326,554 $ 586,245,778 Gold bullion contributed 73,293 135,924,342 Gold bullion distributed (58,565 ) (98,749,370 ) Realized gain from gold distributed from in-kind — 1,178,406 Change in unrealized appreciation (depreciation) — 31,993,651 Ending balance as of January 31, 2023 341,282 $ 656,592,807 Under the Custody Agreement, the Trustee, the Sponsor and the Sponsor’s auditors and inspectors may visit the premises of the Custodian for the purpose of examining the Trust’s gold and certain related records maintained by the Custodian. The Sponsor exercised its right to visit the Custodian’s premises and inspect the Trust’s gold and related records most recently on August 22, 2022. During the fiscal year that ended January 31, 2023, Inspectorate International Limited, a leading commodity inspection and testing company, conducted a physical gold audit of the Trust on February 23, 2022. Due to rail strikes in the UK, Inspectorate was unable to perform a physical inspection of the Trust’s gold on January 31, 2023. Inspectorate was able to conduct a physical gold audit of the Trust on February 2, 2023. Prospective Change in Pricing Index The pricing index the Sponsor uses in relation to the Shares issued by the Trust intends to change to reference the Solactive Index in lieu of the LBMA PM Gold Price. Following the Index Change Date, in determining the Trust’s NAV, the Trustee will value the gold held by the trust based on the Solactive Index. Solactive will own, calculate, and disseminate the Solactive Index. The Solactive Index is a U.S. Dollar denominated index that aims to provide a price fixing for the gold spot price quoted as U.S. Dollars per Troy Ounce and determined for the close of trading on the NYSE. The Solactive Index calculates gold bullion fixing prices by taking TWAP of XAU trading prices provided via IDS data feed. Specifically, the Solactive Index uses a TWAP calculation to determine an average price that is time-weighted, using Trade Ticks for two specified time periods around the scheduled close of trading on the NYSE (generally, 4:00 PM Eastern Time). The TWAP is derived for (1) the Time Period 1, which consists of the five minutes before the close of trading, and (2) Time Period 2, which consists of the six seconds after the close of trading. The TWAPs for Time Period 1 and Time Period 2 are then aggregated, with 90% weighting given to Time Period 1 and 10% weighting given to Time Period 2, to calculate the Solactive Index. 40 For any calculation day t , the Solactive Index ( Index t ), is determined in accordance with the following formula: The Solactive Index is calculated and published by Solactive no later than 30 minutes following the close of trading on the NYSE, disseminated to major financial data providers, and made publicly available via the Trust’s website. The Solactive Index calculation is based on XAU market data from IDS, which is a major provider of financial market data. The data is available through IDS’s data streaming service, which covers 2,700 spot rates and over 7,500 forwards and non-deliverable forwards, with an average of over 130 million updates per day for spot. IDS compiles data from over 100 sources, including market makers, execution venues, banks and brokers from across the globe, and every updating Trade Tick of spot streaming data is available via IDS’s Integrated Data Viewer service in a file-based format. It is unlikely that, on any given trading day for the Shares, there would be no Trade Ticks recorded for XAU in either Time Period 1 or Time Period 2, such that the Solactive Index calculation could not be performed on such day. Trade Ticks representing XAU are the closing prices for specific gold bullion transactions posted in a 24-hour, global, over-the-counter gold bullion market, which is not subject to trading suspensions, trading halts, or market closures. However, in the unlikely event that IDS is unable to publish pricing information for XAU, for whatever reason, during either Time Period 1 or Time Period 2 on a given trading day, the last available Solactive Index calculation will be used in accordance with Solactive’s published and publicly available disruption policy. If the Sponsor determines that such price is inappropriate to use, it shall identify an alternate basis for evaluation to be employed by the Trustee. The Sponsor may instruct the Trustee to use a different publicly available price which the Sponsor determines to fairly represent the commercial value of the Trust’s gold. The Trustee’s estimation of accrued but unpaid fees, expenses and liabilities will be conclusive upon all persons interested in the Trust, and no revision or correction in any computation made under the Trust Agreement will be required by reason of any difference in amounts estimated from those actually paid. The Sponsor and the investors may rely on any evaluation or determination of any amount made by the Trustee, and except for any determination by the Sponsor as to the price to be used to evaluate gold, the Sponsor will have no responsibility for the evaluation’s accuracy. The determinations the Trustee makes will be made in good faith upon the basis of, and the Trustee will not be liable for any errors contained in, information reasonably available to it. The Trustee will not be liable to the Sponsor, Authorized Participants, the investors or any other person for errors in judgment. However, the preceding liability exclusion will not protect the Trustee against any liability resulting from bad faith or gross negligence in the performance of its duties. The Sponsor will give 60 day notice of the Index Change Date by issuing a press release and filing an 8-K. 41 Marketing Agent Agreement and Name Change On October 22, 2015, the Sponsor and the Trustee entered into a First Amendment To Depositary Trust Agreement (the “First Trust Amendment”), amending the Trust Agreement to effectuate a change in the name of the Trust from “Merk Gold Trust” to “Van Eck Merk Gold Trust,” effective as of October 26, 2015. As a result of the name change, all references to “Merk Gold Trust” in the Trust Agreement were amended to read “Van Eck Merk Gold Trust,” and the shares offered by the Trust were known as the “Van Eck Merk Gold Shares”. On October 22, 2015, the Sponsor, for the benefit of the Trust, entered into a Marketing Agent Agreement (the “Marketing Agreement”) with Van Eck Securities Corporation (“VanEck” or “Marketing Agent”). Pursuant to the Marketing Agreement, VanEck now provides assistance in the marketing of the Shares. The obligations created by the Marketing Agreement are obligations of the Sponsor of the Trust and any fees payable under the Marketing Agreement to VanEck are payable from the Sponsor’s fee (as calculated and defined in the Trust Agreement). The Trust will not incur additional financial or other performance obligations pursuant to the Marketing Agreement. The Sponsor entered into the First Trust Amendment and effectuated the name change of the Trust in satisfaction of a term of the Marketing Agreement. The Marketing Agreement further grants VanEck the right to elect to replace Merk as the sponsor of the Trust under specific qualifying circumstances, subject to the execution and consummation of definitive agreements addressing all regulatory requirements applicable to such transaction and satisfaction of such requirements, and announcement and related reporting at such time. Specifically, VanEck has a right of first refusal for the purchase of the sponsorship of the Trust, and all rights attributable thereto, upon the earlier of a commitment for a change of control of Merk or 15 years from the date of the Marketing Agreement. Additionally, VanEck may elect to replace Merk as the sponsor of the Trust upon the earlier of the average daily net assets of the Trust during a calendar quarter not attributable to Shares held by Merk or its affiliates (“Third Party Assets”) equaling $500 million, or VanEck’s compensation under the fee provisions of the Marketing Agreement reaching in aggregate 10% of the gross proceeds from sale of the Shares (the “Maximum Fee”). Merk further agreed that if the Third Party Assets equal or exceed $500 million, for such period as Merk remains sponsor of the Trust, VanEck may propose the rate of the Sponsor’s fee to Merk, which Merk shall not unreasonably reject and shall timely adopt if reasonable, provided, VanEck acknowledges that only the formal named sponsor of the Trust shall have the right to set the Sponsor’s fee at any time. On April 28, 2016, the Sponsor and the Trustee entered into a Second Amendment to Depositary Trust Agreement (the “Second Trust Amendment”), amending the Trust Agreement to effectuate a second change in the name of the Trust from “Van Eck Merk Gold Trust” to “VanEck Merk Gold Trust,” at the request of the Marketing Agent to reflect its rebranding as “VanEck”. As a result of the name change, all references to “Van Eck Merk Gold Trust” in the Trust Agreement were amended to read “VanEck Merk Gold Trust,” and the shares offered by the Trust are now known as the “VanEck Merk Gold Shares”. Except for the name change effected pursuant to the Second Trust Amendment, the Trust Agreement remains in full force and effect on its existing terms. Change in Settlement Cycle and Amendment to Authorized Participant Agreements On March 22, 2017, the Securities and Exchange Commission adopted an amendment to reduce by one business day the standard settlement cycle for most broker-dealer securities transactions. Prior to the implementation of the shorter settlement cycle, the standard settlement cycle for such transactions was three business days, known as T+3. The amended rule shortens the settlement cycle to two business days, or T+2. This change in the settlement cycle affects both the creation and redemption procedures for Baskets and trading in the shares. Compliance with the new settlement cycle went into effect on September 5, 2017. Due to the fact that the aforementioned creation and redemption procedures are addressed in the Authorized Participant Agreements by among the Authorized Participants, the Trustee and the Sponsor, the Trustee and the Sponsor exercised their rights to amend each such agreement to address the new T+2 settlement cycle and executed First Amendments to each of the Authorized Participant Agreements, effective as of September 5, 2017, and provided timely notice of such amendment to the Authorized Participants. Except for the foregoing amendments, the Authorized Participant Agreements remain in full force and effect on their existing terms. 42 Review of Financial Results The NAV of the Trust is obtained by subtracting the Trust’s expenses and liabilities on any day from the value of the gold owned by the Trust on that day; the NAV per Share is obtained by dividing the NAV of the Trust on a given day by the number of Shares outstanding on that day. Comparison of the Fiscal Years Ended January 31, 2023 and 2022 The Trust’s NAV increased from $586,245,772 on January 31, 2022 to $656,592,798 on January 31, 2023, a 12% increase for the fiscal year. The increase in the Trust’s NAV resulted primarily from an increase in the number of Shares issued during the period, which rose from 33,599,843 Shares issued and outstanding on January 31, 2022 to 35,203,259 Shares issued and outstanding on January 31, 2023. NAV per Share increased 6.88% from $17.45 on January 31, 2022 to $18.65 on January 31, 2023. The Trust’s NAV per Share increased slightly less than the price per Ounce of gold on a percentage basis due to the Sponsor’s Fee, which was $1,557,794 for the year, or 0.24% of the Trust’s net assets on an annualized basis. The NAV per Share of $19.81 on March 8, 2022 was the highest during the year, compared with a low of $15.80 on November 3, 2022. Net increase in net assets resulting from operations for the year ended January 31, 2023 was 31,614,263, resulting from a net realized gain of $1,178,406 from gold bullion distributed for redemptions and an increase in unrealized appreciation on gold of $31,993,651 and by the Sponsor’s Fee of $1,557,794. Other than the Sponsor’s Fee, the Trust had no expenses during the year ended January 31, 2023. For the calendar year ended December 31, 2021, the Marketing Agent earned a fee of $233,426. For the calendar year ended December 31, 2022, the Marketing Agent earned a fee of $322,287. The total fees earned by the Marketing Agent since the initiation of the Marketing Agent’s efforts through December 31, 2022 are $737,557, which at that time represented 0.97% of the Maximum Fee potentially payable to the Marketing Agent pursuant to the Marketing Agent Agreement. The fee earned in a calendar quarter is paid in the subsequent calendar quarter. Comparison of the Fiscal Years Ended January 31, 2022 and 2021 The Trust’s NAV increased from $442,483,105 on January 31, 2021 to $586,245,772 on January 31, 2022, a 32.49% increase for the fiscal year. The increase in the Trust’s NAV resulted primarily from an increase in the number of Shares issued during the period, which rose from 24,366,372 Shares issued and outstanding on January 31, 2021 to 33,599,843 Shares issued and outstanding on January 31, 2022. NAV per Share decreased 3.91% from $18.16 on January 31, 2021 to $17.45 on January 31, 2022. The Trust’s NAV per Share decreased slightly more than the price per Ounce of gold on a percentage basis due to the Sponsor’s Fee, which was $1,271,275 for the year, or 0.22% of the Trust’s net assets on an annualized basis. The NAV per Share of $18.52 on June 2, 2021 was the highest during the year, compared with a low of $16.40 on March 30, 2021. Net decrease in net assets resulting from operations for the year ended January 31, 2022 was 18,183,432, resulting from a net realized gain of $1,756,856 from gold bullion distributed for redemptions and a decrease in unrealized appreciation on gold of $18,669,013 and by the Sponsor’s Fee of $1,271,275. Other than the Sponsor’s Fee, the Trust had no expenses during the year ended January 31, 2022. 43 For the calendar year ended December 31, 2020, the Marketing Agent earned a fee of $108,438. For the calendar year ended December 31, 2021, the Marketing Agent earned a fee of $233,426. The total fees earned by the Marketing Agent since the initiation of the Marketing Agent’s efforts through December 31, 2021 are $415,270, which at that time represented 0.65% of the Maximum Fee potentially payable to the Marketing Agent pursuant to the Marketing Agent Agreement. The fee earned in a calendar quarter is paid in the subsequent calendar quarter. Comparison of the Fiscal Years Ended January 31, 2021 and 2020 The Trust’s NAV increased from $198,479,743 on January 31, 2020 to $442,483,105 on January 31, 2021, an 122.94% increase for the fiscal year. The increase in the Trust’s NAV resulted primarily from an increase in the number of Shares issued during the period, which rose from 12,817,945 Shares issued and outstanding on January 31, 2020 to 24,366,372 Shares issued and outstanding on January 31, 2021. NAV per Share increased 17.31% from $15.48 on January 31, 2020 to $18.16 on January 31, 2021. The Trust’s NAV per Share increased slightly less than the price per Ounce of gold on a percentage basis due to the Sponsor’s Fee, which was $1,013,291 for the year, or 0.30% of the Trust’s assets on an annualized basis. The NAV per Share of $20.17 on August 06, 2020 was the highest during the year, compared with a low of $14.40 on March 19, 2020. Net increase in net assets resulting from operations for the year ended January 31, 2021 was $38,317,217, resulting from a net realized gain of $7,325,362 from gold bullion distributed for redemptions and an increase in unrealized appreciation on gold of $32,005,146 and by the Sponsor’s Fee of $1,013,291. Other than the Sponsor’s Fee, the Trust had no expenses during the year ended January 31, 2021. For the calendar year ended December 31, 2019, the Marketing Agent earned a fee of $36,640. For the calendar year ended December 31, 2020, the Marketing Agent earned a fee of $108,438. The total fees earned by the Marketing Agent since the initiation of the Marketing Agent’s efforts through December 31, 2020 are $181,844, which at that time represented 0.40% of the Maximum Fee potentially payable to the Marketing Agent pursuant to the Marketing Agent Agreement. The fee earned in a calendar quarter is paid in the subsequent calendar quarter. Liquidity The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs. In exchange for the Sponsor’s Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. As a result, the only expense of the Trust during the period covered by this Report was the Sponsor’s Fee. The Trustee will not sell gold to pay the Sponsor’s Fee but will pay the Sponsor’s Fee through Share creation. At January 31, 2023, the Trust did not have any cash balances. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Not applicable.