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 government debt is a major factor behind the surge in prices to never-before-seen highs above $5,100 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 Plc 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 tons 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 tons to its reserves, made larger declared purchases. It is also more than 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.
The company holds around 140 tons 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 approximately $23 billion, the largest known hoard outside of those held by central banks, ETFs and commercial banks whose vaults underpin the main trading hubs.
And it’s only growing: Ardoino said that Tether had been buying at a rate of about one to two tons a week, and intended to continue doing so for “definitely the next few months.”
“Then of course, based on the market, we are going to decide, but yeah, I think we will continue in this direction,” the 41 year-old Italian added.
Asked if there was a point at which Tether might reduce its gold purchases, Ardoino said: “Maybe we are going to reduce, we don’t know yet. We are going to assess on a quarterly basis our demand for gold.”
Photo Credit: Bloomberg
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. “It’s crazy.”
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 behind the buying. China, for example, officially disclosed just 27 tons 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 Inc said in a note, describing Tether as a “significant new buyer” which “could drive sustained gold demand.”
Still, Tether is only a small part of a much larger rush from investors into gold, with central banks and ETF investors collectively buying more than 1,500 tons of metal.
Tether’s buying would have had an impact on the price, but was only a small part of the reason for gold’s spectacular rally, said John Reade, chief strategist for the World Gold Council. “They have been a component of the rally, but not all by any means,” he said.
‘The Best Trading Floor for Gold in the World’
Ardoino is not content with merely buying gold. He also wants Tether to trade it – effectively competing with the likes of JPMorgan Chase & Co., HSBC, and the other big banks that dominate the market.
The company needs “the best trading floor for gold in the world” in order continue buying bullion in the long term and to capitalize on potential market inefficiencies, Ardoino said, adding that it is still analyzing the market and potential trading strategies would be structured so the company “remains very long physical gold.”
