10-K: Franklin Responsibly Sourced Gold ETF Reports Robust Growth Driven by Soaring Gold Prices in Fiscal Year 2025

Franklin Responsibly Sourced Gold ETF (FGDL) reported a significant increase in net assets and NAV per share for the fiscal year ended March 31, 2025, primarily driven by a substantial appreciation in gold prices.

Summary

• The Fund's investment objective is for Shares to reflect the performance of the price of gold bullion, less the Fund's expenses.
• The Fund seeks to hold only responsibly sourced gold, defined as London Good Delivery gold bullion bars refined on or after January 1, 2012, in accordance with LBMA's Responsible Gold Guidance.
• For the fiscal year ended March 31, 2025, net assets increased to approximately $186,935,761, up from $62,102,631 at March 31, 2024.
• Net Asset Value (NAV) per Share increased by 40.48%, from $29.57 at March 31, 2024, to $41.54 at March 31, 2025.
• This NAV increase is directly related to a 40.68% increase in the price of gold, from $2,214.35 per ounce at March 31, 2024, to $3,115.10 per ounce at March 31, 2025.
• During the fiscal year 2025, 3,150,000 Shares were issued in exchange for 42,022.504 ounces of gold, and 750,000 Shares were redeemed in exchange for 10,005.285 ounces of gold.
• Net realized and unrealized gain on investment in gold for the year ended March 31, 2025, was approximately $34,730,830.
• The Sponsor's fee for the year was $142,813, calculated at an annual rate of 0.15% of the daily net asset value.
• Net increase in net assets resulting from operations was approximately $34,588,017 for the fiscal year ended March 31, 2025.
• Net capital share transactions contributed approximately $90,245,113 to the increase in net assets.
• As of March 31, 2025, the Custodian held 60,016.277 ounces of gold on behalf of the Fund, with a market value of $186,956,705.
• An audit inspection of the Fund's gold bullion holdings by Bureau Veritas Commodities UK LTD on April 1, 2025, identified no non-conformities.

Sentiment

Score: 8

Explanation: The document reports strong financial performance for the Franklin Responsibly Sourced Gold ETF, driven by a substantial increase in gold prices. While it thoroughly outlines inherent risks common to gold investments and passive ETFs, the reported financial results for the fiscal year ended March 31, 2025, are very favorable, indicating a positive period for the Fund.

Positives

• Net Asset Value per Share increased significantly by 40.48% for the fiscal year ended March 31, 2025, reflecting strong performance.
• The Fund's net assets grew substantially to $186,935,761, indicating increased investor interest and gold price appreciation.
• The increase in NAV per Share was directly correlated with a robust 40.68% increase in the price of gold.
• A third-party audit of gold bullion holdings concluded with no non-conformities, affirming the integrity of the Fund's physical gold assets.
• The Fund maintains a low annual expense ratio of 0.15%, with the Sponsor assuming most ordinary fees, which is beneficial for investors.
• The Fund's commitment to holding only responsibly sourced gold aligns with growing ethical investment preferences.

Negatives

• The Fund is a passive investment vehicle and does not actively manage its portfolio to mitigate losses from gold price decreases or optimize sales, meaning it cannot react to market fluctuations.
• The amount of gold represented by each Share will gradually decline over time due to sales necessary to pay Fund expenses, which could lead to a decline in the trading price relative to gold if the gold price remains constant.
• Shareholders do not possess traditional corporate rights, such as electing directors or bringing derivative actions, limiting their influence over the Fund's operations.
• Investors in the Fund do not receive the regulatory protections afforded to investors in registered investment companies under the 1940 Act or CEA-regulated commodity pools.
• Shares may trade at a price that is at, above, or below the NAV per Share, and this discount or premium may widen due to non-concurrent trading hours between COMEX and NYSE Arca.
• The Fund's gold bullion may be sold at low prices to pay expenses, as the Sponsor makes no attempt to time sales based on gold price fluctuations.
• The Custodian's insurance may not cover the full amount of gold, and the Fund is not a beneficiary of such insurance, exposing shareholders to potential uncovered losses.
• Shareholders and Authorized Participants lack direct rights to assert claims against the Custodian under the Custody Agreements.
• U.S. individual investors may face a higher maximum tax rate of 28% on long-term capital gains from gold, and certain Fund expenses may not be deductible for tax years through 2025.

Risks

• Market risk: The market price of gold bullion is historically unpredictable and subject to rapid fluctuations, directly impacting the value of Shares.
• Large-scale sales of gold by the official sector (governments, central banks) could significantly decrease gold prices.
• A substantial increase in gold hedging activity by gold producers could lead to a decline in world gold prices.
• A negative shift in the outlook of speculators and investors towards gold could cause a decline in world gold prices.
• Global gold supply and demand, influenced by factors like jewelry fabrication, industrial applications, investor purchases, central bank activities, and production costs, affects gold prices.
• Global or regional political, economic, or financial crises, including supply chain disruptions, trade disputes, and economic sanctions, can cause volatility in precious metals prices.
• Expectations regarding inflation rates and interest rates can influence the price of gold.
• Investment and trading activities of hedge funds and commodity funds can impact gold prices.
• Other economic variables such as income growth, economic output, and monetary policies affect gold prices.
• Investor confidence can significantly influence gold prices.
• War, such as the Russia-Ukraine conflict, may cause severe disruptions in global gold markets and supply chains, potentially impacting the Fund's performance.
• The Fund is not a diversified investment, making it potentially more volatile than a broadly diversified portfolio.
• Gold is comparatively less liquid than other commodities, contributing to price volatility.
• The Fund's gold bullion may be sold at low prices to pay expenses, as the Fund is not actively managed to protect against price declines.
• Temporary increases in gold prices due to purchasing activity for Creation Units may lead to subsequent declines, adversely affecting the Fund.
• Large redemptions from other gold ETFs could negatively affect gold bullion prices and the Fund's NAV.
• Potential discrepancies or manipulation in the calculation of the LBMA Gold Price PM could adversely affect the Fund's NAV.
• An active and liquid market for the Shares may not be sustained, adversely affecting market prices and liquidity.
• Disruptions to the creation and redemption process could cause the price of Shares to deviate significantly from NAV.
• The amount of gold represented by each Share will gradually decrease over time due to sales for expenses, leading to a decline in Share price relative to gold.
• Competition from other methods of investing in gold could limit the market for Shares and reduce liquidity.
• The Fund may be required to terminate and liquidate at a time disadvantageous to Shareholders.
• Redemption orders may be subject to rejection, suspension, or postponement under certain circumstances.
• Withdrawal of Authorized Participants or substantial redemptions could decrease the liquidity and market price of Shares.
• The Trust is an emerging growth company, and its reduced disclosure requirements may make Shares less attractive to some investors.
• Reliance on the Custodian for safekeeping gold bullion exposes the Fund to losses if the Custodian fails to exercise due care.
• The Custodian's liability for loss or damage to gold is limited to negligence, fraud, or willful default, and its insurance may not cover the full amount of gold.
• Legal disputes concerning custody arrangements governed by English law may be difficult to interpret or enforce in U.S. courts.
• Shareholders and Authorized Participants lack direct rights to assert claims against the Custodian under the Custody Agreements.
• Gold transferred to the Fund may not be of the required quality, potentially leading to losses if the Fund issues Shares for inferior gold.
• The Fund lacks insurance protection for its gold, and shareholders have limited legal recourse against service providers, exposing them to uncovered losses.
• Resignation of the Custodian would likely lead to the termination of the Fund if no successor is appointed.
• The gold bullion custody operations of the Custodian are not subject to specific governmental regulatory supervision.
• U.S. federal income tax on gains from gold held for more than a year by individuals is subject to a maximum rate of 28%.
• U.S. individual investors may not deduct certain miscellaneous itemized deductions, including some Fund expenses, for tax years beginning after December 31, 2017, and before January 1, 2026.
• The Fund is exposed to various operational risks, including human error, information technology failures, and non-compliance with procedures.
• Market disruption events or extraordinary events could cause disruptions in the Fund's operations and secondary market trading.
• Service providers engaged by the Fund may not carry adequate insurance to cover claims, potentially affecting the Fund's net assets.
• The Fund's obligation to indemnify certain service providers could adversely affect an investment in the Shares.
• Potential conflicts of interest may arise among the Sponsor or its affiliates and the Fund, as the Sponsor is not exclusively devoted to the Fund's management.

Future Outlook

The Fund's future performance is directly tied to the unpredictable price of gold, which can be influenced by global supply and demand, economic conditions, geopolitical events, and investor sentiment. The amount of gold represented by each Share is expected to gradually decline over time due to sales for expenses, which will also cause the trading price of Shares to decline relative to the price of gold, assuming a constant gold price. The Sponsor does not intend to update forward-looking statements.

Management Comments

• The Sponsor believes that the size and operation of the gold bullion market make it unlikely that an Authorized Participant's direct activities in the gold or securities markets will impact the price of gold or the price of the Shares.
• The Sponsor will endeavor to sell the smallest amounts of gold bullion needed to pay expenses in order to minimize the Fund's holdings of assets other than gold bullion and will endeavor to sell at the LBMA Gold Price PM.
• The Sponsor will make no attempt to buy or sell gold bullion to protect against or to take advantage of fluctuations in the price of gold.
• Management, including the Principal Executive Officer and the Principal Financial Officer of the Sponsor, concluded that the Trust and the Fund maintained effective internal control over financial reporting as of March 31, 2025.

Industry Context

The Franklin Responsibly Sourced Gold ETF operates within the broader gold investment market, competing with other gold-backed ETFs, direct gold investments, and traditional securities in the gold industry. Its focus on 'responsibly sourced gold' aligns with increasing investor demand for ethical and sustainable investment products, differentiating it from some competitors. The Fund's performance is highly correlated with the LBMA Gold Price, reflecting its passive investment strategy. Geopolitical events, such as the Russia-Ukraine conflict and associated sanctions, have impacted the broader gold market by affecting supply chains and refiner lists, though the document states no material impact on the Fund's performance from these specific events.

Comparison to Industry Standards

• The Fund's investment objective to reflect the performance of gold bullion, less expenses, is a standard objective for physical gold ETFs.
• The Fund utilizes the LBMA Gold Price PM as its primary valuation benchmark, which is a widely accepted and independently administered price for gold in the London bullion market.
• The Fund's commitment to holding 'responsibly sourced gold' (post-2012 LBMA Good Delivery bars refined per LBMA Responsible Gold Guidance) aligns with evolving industry standards for ethical sourcing, such as those promoted by the LBMA's Responsible Sourcing Programme and OECD due diligence guidance.
• The annual expense ratio of 0.15% is competitive within the physical gold ETF market, often lower than actively managed funds or those with higher operational complexities.
• The audit of gold bullion holdings by Bureau Veritas Commodities UK LTD, a recognized third-party, confirms adherence to good delivery standards, which is a common practice for physical gold ETFs to ensure asset integrity.

Corporate Governance

Legal Proceedings

• No material legal proceedings are currently subject to or threatened against the Trust or the Fund as of June 27, 2025.

Related Party Transactions

• Franklin Holdings, LLC serves as the Sponsor of the Trust and the Fund, and is considered a related party.
• Franklin Distributors, LLC serves as the Marketing Agent of the Fund and is an affiliate of the Sponsor, thus a related party.
• Franklin Resources, Inc. (FRI) is the ultimate parent company of the Sponsor and the Marketing Agent, and is considered a related party.
• Expenses payable to the Marketing Agent, if any, are paid through the Sponsor's fee.
• As of March 31, 2025, no shares of the Fund were held by any related party.

Stakeholder Impact

• Shareholders are directly impacted by the performance of gold prices, the Fund's expenses, and the gradual decline in the amount of gold represented per share. They benefit from the Fund's responsible sourcing policy and the recent strong gold price appreciation.
• Authorized Participants facilitate the creation and redemption of Creation Units, paying a transaction fee, and are indemnified by the Sponsor against certain liabilities.
• The Sponsor (Franklin Holdings, LLC) benefits from an annual fee of 0.15% of the Fund's daily NAV and assumes most ordinary expenses, aligning its interests with the Fund's asset growth.
• The Custodian (JPMorgan Chase Bank, N.A., London branch) is responsible for the safekeeping of gold bullion, but its liability is limited, and its insurance may not cover the full value of the gold, posing a risk to the Fund's assets.
• The Administrator and Transfer Agent (BNY Mellon Asset Servicing) provide essential operational services, with their fees covered by the Sponsor.
• The Trustee (CSC Delaware Trust Company) performs limited duties and is indemnified by the Trust.
• The Marketing Agent (Franklin Distributors, LLC) assists in promoting the Fund and its Shares.

Next Steps

• The Sponsor will give written notice to Shareholders at least 30 days prior to any termination of the Trust or Fund.
• Upon termination, the Sponsor will sell all gold bullion not already distributed to Authorized Participants.
• The Sponsor may amend the Declaration of Trust in its sole discretion.
• The Trust expects to remain an emerging growth company until it meets certain thresholds related to annual gross revenues, non-convertible debt, or large accelerated filer status.
• The Sponsor's officers and/or properly designated representatives will verify the Fund's gold holdings at least annually.
• The independent public accountants endeavor to examine the gold bullion held by the Custodian in person at least annually.

Key Dates

Recommendation

Keywords

Gold ETF, FGDL, Franklin Templeton, Gold Bullion, Responsible Sourcing, LBMA Gold Price, Precious Metals, Investment Fund, Commodity ETF, SEC Filing, 10-K, Financial Report, Asset Management