Global stablecoin issuer Tether has deepened its foray into the traditional gold market, moving beyond its massive gold purchases to become a key gold lender. The company has provided roughly US$1.5 billion in financing to US precious metals dealer Gold.com, aiming to transform its substantial hoard of gold into an income-generating asset.

According to Gold.com's annual report, the company had approximately US$1.7 billion in outstanding precious metals leases as of the end of June this year, with most of that amount coming from Tether. During the same period, Gold.com's payables and prepaid balances owed to Tether reached US$1.45 billion. This marks a notable shift in Tether's relationship with the gold market — from large-scale buying into the lending and leasing sphere.

Holding roughly 146 tonnes of gold worth about US$20 billion at current prices, Tether first drew market attention last year for its aggressive gold purchases, which at times surpassed nearly all global central banks and placed it among the largest gold buyers in the world. Tether's capacity to keep expanding its gold investments is largely thanks to the substantial financial resources generated by USDT. As the world's largest dollar-pegged stablecoin, USDT is issued by Tether, which can deploy investor funds into reserve assets such as US Treasuries and gold to earn investment returns.

However, unlike US Treasuries which produce interest income, physical gold does not generate any cash flow on its own and even carries costs such as insurance and storage. So after accumulating such a huge gold pile, finding ways to improve the efficiency of those assets has become Tether's next step in its gold strategy. Providing gold financing to Gold.com opens a fresh revenue channel for the stablecoin giant.

Where to begin understanding this move: Tether's relationship with Gold.com extends well beyond gold lending. Earlier this year, Tether spent US$150 million to acquire around 13% of Gold.com. Since then, the two have signed multiple cooperation agreements covering the purchase and sale of precious metals between each other, and Tether has also agreed to store some of its precious metals at Gold.com's Las Vegas facility.

Gold.com owns major US precious metals brands including A-Mark Precious Metals and JM Bullion, giving it significant influence in the US physical gold trading and distribution market. Greg Roberts, the company's chief executive, said during a recent earnings call that the cooperation potential with Tether is very broad, noting that Gold.com can offer Tether opportunities that other trading partners cannot.

For Tether, the partnership with Gold.com not only streamlines the gold buying, storage, and trading chain — more importantly, it allows the physical gold that once generated zero returns to start contributing to the bottom line through gold leasing.

Gold leasing is actually a long-established financing business in the global physical gold market. Institutions like central banks that hold gold for long periods typically keep large quantities of bullion locked in vaults, earning no interest and incurring storage costs. As a result, some major gold holders lend out their gold to banks at low interest rates, and those banks in turn supply the metal to refiners, jewelers, and other gold market participants.

This type of financing is especially critical for companies in the gold supply chain. Refiners, jewelers, and bullion dealers often need to maintain large gold inventories of enormous value. If they relied entirely on dollar loans to buy gold, the costs would be high and they would face direct exposure to price volatility. Through gold leasing, these companies can borrow gold directly for operations, reducing their dependence on dollar financing.

Historically, this market has been dominated by large multinational banks. By entering the space with its own substantial physical gold reserves, Tether is essentially stepping into a role traditionally played by established bullion financing institutions. Earlier this year, the company also held talks with several Swiss gold refiners about the possibility of providing them with financing. A period of record-high gold prices accompanied by sharp volatility had pushed up banks' credit exposure to refiners, straining the traditional gold financing market in the first quarter and creating an opening for a player like Tether with large physical gold holdings.

The cost advantages of Tether's gold liquidity are evident from the specific terms disclosed by Gold.com. Under a term sheet filed with US securities regulators, a US$100 million gold lease arrangement between Tether and Gold.com struck in February carries an annual interest rate of just 1.75%. By contrast, Gold.com's dollar funding costs through bank credit lines at the time were around 6%.

In other words, purely on nominal financing rates, borrowing gold through Tether is far cheaper than traditional dollar bank loans. That said, gold leasing and direct dollar borrowing do not have identical economic effects, since using leased gold may mean giving up some potential gains that could otherwise be captured through derivatives hedging. Roberts noted that for Gold.com, this still represents a lower-cost source of liquidity, and the two sides have found a mutually beneficial model of cooperation.