Tether is shaking up gold market with massive metal hoard

There are roughly 370,000 nuclear bunkers in Switzerland, a legacy of the Cold War that are now rarely used. One of them, though, is a hive of activity.

Every week, more than a ton of gold is hauled in to the high-security vault, owned by crypto giant Tether Holdings SA, which is now the world’s largest known hoard of bullion outside of banks and nation states. Over the past year, Tether has quietly become one of the biggest players in the global gold market — the embodiment of a meeting of the crypto and gold worlds whose shared distrust of govt debt is a major factor behind the surge in prices to never-before-seen highs above $5,200 an ounce.

And yet relatively little is known about its inner workings, or its gold strategy. When two of the most senior gold traders quit leading bullion bank HSBC Holdings last year, the industry was abuzz with gossip about where they would head next; few guessed that the answer was Tether.

In an interview with Bloomberg, chief executive Paolo Ardoino described the company’s role in the gold market as similar to that of a central bank, and predicted that Washington’s geopolitical rivals would launch a gold-backed alternative to the dollar.

He revealed that it plans to keep ploughing its enormous profits into gold, while also beginning to compete with banks in trading the metal.

“We are soon becoming basically one of the biggest, let’s say, gold central banks in the world,” he said.

Even in these historic times for the gold market, Tether’s activities stand out. It has rapidly stepped up its purchases, buying over 70 tonnes of gold over the course of last year for its reserves and its own gold stablecoin, according to a Bloomberg calculation. That’s more than was reported by almost any single central bank: only Poland, which added 102 tonnes to its reserves, made larger declared purchases. It is also more than what was bought by any but the three largest exchange-traded funds, which represent the collective activity of tens of thousands of individual traders and investors.

Tether holds around 140 tonnes of gold, according to Ardoino, most of which are its own reserves, along with the bullion backing its own gold token. That amount of metal is worth $24 billion, the largest known hoard outside of those held by central banks, ETFs and commercial banks whose vaults underpin the main trading hubs. Ardoino said Tether had been buying at a rate of about one to two tonnes a week, and intended to continue doing so for “definitely the next few months.”

Tether makes money from its dollar stablecoin that is the giant of the sector, with $186 billion in circulation. The company takes in real dollars in exchange for that USDT token, and invests them in Treasuries and other assets, such as gold, raking in billions in interest and trading profits.

Possessing the physical metal is crucial, Ardoino said, so much so that the company has taken the unusual step of storing the bullion itself in the former nuclear bunker in Switzerland, guarded by multiple layers of thick steel doors. “It’s a James Bond kind of place,” Ardoino said.

The secretive nature of the gold market means that while it’s easy to describe broad drivers of investment, it can be hard to pinpoint who exactly is buying. China, for example, officially disclosed just 27 tonnes of purchases last year, but many traders believe it bought much more.

Such is the scale of Tether’s disclosed purchases, that some market watchers have pointed to their role in shifting global prices. The purchases likely contributed to gold’s 65% rally last year, analysts at Jefferies Financial Group said in a note, describing Tether as a “significant new buyer” which “could drive sustained gold demand.”