The man with the shadow bullion bank
Theories about why Tether is piling into gold abound. But there's no mystery. Basel III has constrained bullion banks, leaving ample opportunities for non-banks, especially as arbitrages open up.
The brilliant but always mysterious Bryce Elder has a new piece out on FT Alphaville suggesting the gold price run-up last month may have been primarily fueled by Tether’s recent gold-buying binge.
As Bryce — a former colleague of mine — puts it:
“Remember about a month ago, when gold hit an all-time high, lots of commentators got on their hobby horses to huff about currency debasement? Then another set of commentators called nonsense on that idea, saying gold demand was probably just dollar avoidance plus momentum. Maybe everyone was overthinking it. Maybe gold went up because Tether has been buying.”
That Tether has been piling into gold, however, is no secret. CEO Paolo Ardoino told The Peg last month that the OG of stablecoins was sitting on more than 100 tons of gold, using it to hedge against, as he put it, “all the darkness in the world”.
The relevant section from our report is here:
Tether is seeking to hedge itself against global instability with sizeable investments in gold and the wider gold sector, which it believes will help it defy both hyperinflationary forces and the risk of yield collapse.
“We own more than 100 tons of gold ourselves, in physical gold stored in our vaults in Switzerland,” Ardoino said, adding that it was “very important to have a portion of the portfolio that, whatever happens, had assets that can hedge everything.”
The growing popularity of gold reflects that “the world is going toward darkness,” Ardoino said. “People are scared because most of the national economies and central banks have huge problems,” he said.
