Tether Bets on Gold Miners: A New Layer of Protection


By Chinedu Okoye 

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Summary:

• The Financial Times reports that Tether, the company that issues USDT, is looking to invest in Gold Miners, terming them ‘Natural Bitcoin’, financial times reports.

• Coming off a $5.7bn profit in the first half of the year, the move signals a deeper shift into how institutions are hedging against inflation and exchange rate risks.

• Tether currently maintains a 1:1 peg against the dollar, through a range of USD denominated assets. A move to increase it's gold exposure could involve a reduction in its Treasuries holdings.

• This is a bullish signal for Gold and a justifiable strategy that provides , protection, price appreciation and relative liquidity, cause in an bullish [Gold] market you can get more value from offloading gold assets, than you would from offloading Treasuries.


Tether's Reserve Mix: 

Their Portfolio compromises of;

1. Short-term Treasuries which makes up 75.86% of  the company's reserves, dominates the mix.

2. Repurchase Agreements:  Shortterm loans collateralized or backed by Treasuries make up 12.09%

3. Cash and Bank Deposits: this makes up a smaller share and is mostly foreign liquidity and redemption purposes, the make up the smallest share of the reserves at 0.12%.

4. Money Market Funds: 11.06% of their reserves are invested in short-term safe instruments.

5. Gold and Bitcoin: These make up 3.78%, and 1.94% respectively

6. Secured loans on other investments account for 6.23% of their holdings

7. Other Investments: 2.73%

[Data by BlockApps Network, as at December 2024. The figures could have changed her the proportional guidelines and weighting positions haven't]


Zero Equilibrium Interpretations of the Move;

Why Gold Miners? Reading berwirhe Lines: 

Already holding a portion of their reserves in Gold, the move to mining reflects bullish expectations for Gold. As the yellow metal has to increase more in value to reflect in mining stocks.

Because their biggest holdings are short-term US Treasuries, this feels like a diversification, price appreciation and hedge move all in one.

Bitcoin could also see lesser allocations as we infer from the ‘natural Bitcoin’ phrasing.

How much of their reserves are allocated to gold would indicate the level of confidence in the yellow metal and provide broader market signals on expected future directional movement in gold prices.


The Hedge Sleeve: Inflation Insurance


 The current hedge sleeve (allocations to Gold and Bitcoin, two inflationary resistant assets), is 5.72%. An increase in gold exposure by shifting 2% of their reserves in Treasuries to gold miners; the hedge allocation to inflation resistant which increase to 7.72%.

This lifts Tether's inflation/ debasement hedge (the protection of their portfolio against inflationary pressures) by about 35%.


Merits of the Move: An Extra Layer of Protection


 In an earlier article on the Blog titled: ‘ The New Bretton Woods? Stablecoins, Dollar Dominance, and the Fight for Monetary Sovereignty ’ we stated that “US stablecoins being contemplated as a way to stabilize the dollar and the ECB is looking to join the party” (see Link below)

We've also alluded here on various Blog posts and in our X (formerly Twitter) account on how a major driving force of the Gold rally, is a portfolio shift of major global central banks – particularly the PBOC – diversifying their [reserve asset] portfolios away from USD/US Treasuries into Gold, as well as, financial institutions are also divesting away from Treasuries and long term bonds to the yellow metal.

Both scenarios show up in the data were gold prices have steadily gone up, with bond yields (meaning bind prices which move inversely with yields are falling). This intended move by Tether, confirms our public and private Institutional portfolio shift away from Treasuries to gold.


Alignment with Global Trends:

Tether’s strategy mirrors these moves. With over 70% of its reserves tied up in Treasuries, the stablecoin is particularly vulnerable to inflation and exchange-rate swings. More gold exposure — especially through miners that also pay dividends — provides a buffer..

This explains the move to more gold exposure (stocks of gold miners that offer dividends), and legitimizes the strategy, in line with global trends. This shift may seem small, but in portfolio terms it marks a meaningful rebalancing.

An extra layer of protection is provided with this move, and the degree of protection depends on the weight of the allocation.

As a result, depending on the size of the allocation, and gold price expectations manifesting, we expect the move to result in
- Consolidated stability,
- Slight appreciation, and
- Increased Earnings.


Link to ZE Article on reference: ‘The New Bretton Woods? Stablecoins, Dollar Dominance, and the Fight for Monetary Sovereignty’

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