Switzerland’s Nuclear Bunkers House Tether’s Gold Vault
Switzerland boasts approximately 370,000 nuclear bunkers from the Cold War period, but most remain largely unused. However, one bunker is buzzing with activity.
Each week, over a ton of gold is moved into a high-security vault belonging to Tether Holdings SA, a major player in the cryptocurrency sphere. Interestingly, this vault now holds the largest known amount of bullion outside traditional banks and governments.
In the last year, Tether has quietly positioned itself as a significant force in the global gold market. This represents an intriguing intersection between cryptocurrency and gold, driven largely by a mutual skepticism towards government debt, which has seen gold prices soar to record highs of over $5,100 per ounce.
Yet, details about Tether’s gold strategy and operations remain quite obscure. When two senior traders from HSBC Holdings exited last year, speculation swirled about their next move, with few anticipating Tether as the destination.
In a recent conversation, CEO Paolo Ardoino likened Tether’s role in gold trading to that of a central bank. He also foresees geopolitical rivals of the U.S. introducing gold-backed alternatives to the dollar. He mentioned that Tether plans to keep reinvesting its substantial profits into gold while increasingly competing with banks in this space.
“We’re essentially on the verge of becoming one of the world’s largest, so to speak, gold central banks,” he remarked.
Tether’s activities are particularly striking during this transformative period for the gold market.
Reportedly, the firm has procured over 70 tons of gold recently for its reserves and its gold-backed stablecoin, which surpasses purchases made by almost all individual central banks, bar Poland, which raised its reserves by 102 tonnes. Remarkably, Tether’s acquisitions also outpace those of any fund outside the largest exchange-traded funds.
According to Ardoino, Tether currently holds about 140 tonnes of gold, mostly in reserves tied to its gold tokens. This stash is valued at roughly $23 billion, making it the largest known reserve not linked to central banks or major trading hubs.
These holdings are continually growing, with Tether buying around 1 to 2 tons weekly, a trend Ardoino believes will persist in the months to come.
“Of course, market conditions will play a role, but yes, I think we’ll keep going this way,” the 41-year-old said.
When asked whether Tether might ever slow its gold purchases, Ardoino indicated it’s possible but uncertain, stating they’ll assess gold demand quarterly.
Tether’s revenue largely stems from its dollar stablecoin, which is the leading asset in its category with $186 billion circulating. In exchange for USDT tokens, the company receives actual dollars and redirects them into a range of assets, including U.S. Treasuries and gold, raking in substantial profits.
The necessity of holding the physical gold prompted Tether to store bullion in a previously used nuclear shelter in Switzerland, shielded by robust steel doors. “It’s like something out of a James Bond movie,” Ardoino remarked.
The generally opaque gold market complicates tracking the origins of purchases, though Tether’s scale has drawn attention. Some market insiders suggest its activities have influenced global gold prices, with analysts indicating Tether played a significant role in last year’s 65% price increase. They described it as a “notable new buyer” capable of driving sustained demand.
That said, Tether is just one component in a broader movement toward gold investment, with central banks and ETFs collectively acquiring over 1,500 tonnes.
John Reid, a chief strategist at the World Gold Council, noted Tether’s purchases were influential, yet part of a larger picture. “They contributed to the trend, but they alone aren’t responsible,” he clarified.
The Gold Trading Aim
Aiming higher, Ardoino wants Tether to rival large banks such as JPMorgan Chase and HSBC. He believes the firm requires “the best gold trading venue in the world” to effectively manage long-term gold purchases and capitalize on market variances.
“Our objective is to offer stable, long-term access to gold,” Ardoino stated.
By hiring key traders from HSBC, Tether emphasizes its ambition in the bullion market. Ardoino mentioned they are exploring ways to trade actively with their gold reserves, potentially leveraging arbitrage when futures prices diverge from physical gold’s price.
Acquiring around $1 billion in physical gold monthly poses logistical hurdles. Ardoino explained that Tether secures purchases directly from Swiss refiners and major financial entities in the field, which can take months for large orders to fulfill.
To streamline this process, he noted, “One to two tons weekly is a massive amount.”
Additionally, Tether is broadening its gold interests, recently acquiring stakes in several royalty companies focused on revenue from gold mining operations.
Led by Juan Sartori, a former Uruguayan senator, Tether has invested in numerous mid-sized publicly traded royalty firms in Canada.
Gold Versus the Dollar
Tether’s approach seems reminiscent of central banks, valuing gold’s liquidity and its reputation as a non-debt reserve asset.
Ardoino previously stated, “Gold is logically a safer asset than any currency.” Emerging market users of Tether’s US dollar stablecoin—many of whom prefer gold as a hedge against currency devaluation—align with this sentiment. “We sense a lot of uncertainty in the world,” he remarked.
Nonetheless, investing in gold includes risks. Shifting away from U.S. dollar reserves could impact USDT’s stability in maintaining its peg to the dollar.
In November, analysts at S&P Global downgraded USDT to a “weak” stability rating, citing increased exposure to high-risk assets and limited transparency in reserves over the past year.
Despite this, Tether acknowledges gold in its reserves aligned with its dollar stablecoin.
Thus far, Tether’s gamble on gold has proven lucrative, coinciding with a historic rally as investors re-evaluate dollar holdings.
The company is also enhancing its offerings with Tether Gold (XAUT), a gold-backed token redeemable for physical bullion, which currently represents about 16 tons of gold or $2.6 billion. They’ve even launched a smaller token called Scudo.
Ardoino suggested XAUT could achieve a market valuation of $5 billion to $10 billion, implying that Tether may need to purchase additional gold at a similar weekly rate for this token alone.
Even if XAUT and related tokens remain small compared to the $500 billion ETF market, Ardoino believes their time is coming.
“I suspect foreign nations are stockpiling gold to eventually introduce tokenized gold as a competing currency to the dollar,” he remarked.
Whether or not a gold-backed competitor to the dollar surfaces, Tether’s significant purchases reflect a notable trend. “It’s fascinating that a major player in the crypto space views gold as counter to the dollar,” Reid observed.
