(Kitco News) - In just a few short years, digital gold has helped transform the physical marketplace; however, even this new segment hasn’t been immune to recent price volatility, as one of the world’s leading stablecoin issuers reported a decline in its holdings.
Tether announced last week that its physical gold reserves declined in the third quarter. Despite the reduction, some analysts have said that it does not necessarily signal an end to the company's aggressive accumulation of the precious metal.
In a report published Tuesday, Jefferies analysts led by Fahad Tariq noted that Tether's disclosed gold holdings fell by approximately three metric tons in the third quarter to 165 tons, down from 168 tons at the end of June. The decline follows the company's purchase of roughly 14 tons of gold in the second quarter.
The reduction marks the first quarterly decline since Tether emerged as a significant source of physical gold demand last year. The company issues USDT, the world's largest U.S. dollar-backed stablecoin, as well as XAUT, a digital token backed by physical bullion.
According to Tether's latest reserve disclosures, gold held to back its USDT stablecoin declined by 3.4 tons to 142.8 tons at the end of September. Meanwhile, Jefferies said that gold backing the company's XAUT token remained unchanged at approximately 22 tons.
Despite the decline, Jefferies analysts said they remain optimistic about Tether's long-term role in the gold market.
"We do not view one quarter of modest selling as evidence of a change in Tether’s broader appetite for gold," the analysts said in their report. "In our view, stablecoin reserve allocation and tokenized gold remain emerging sources of institutional physical gold demand, although Tether’s purchases are likely to fluctuate from quarter to quarter."
The analysts noted that Tether's disclosed gold holdings have nearly doubled from approximately 90 tons in June 2025. The company remains a significant player in the physical market, even after its latest reduction.
Jefferies also pointed out that Tether's USDT supply remained relatively unchanged during the third quarter, suggesting that the reduction in gold reserves was not driven by lower stablecoin issuance.
The analysts noted that Tether increased its holdings of Bitcoin and other investments during the quarter. However, the company's disclosures did not indicate whether gold was sold to finance those purchases.
Although Tether reduced its physical holdings, the value of gold backing USDT increased to $19.1 billion at the end of September, compared with $18.8 billion in June, reflecting higher bullion prices during the quarter. Gold represented approximately 10% of USDT reserves, while U.S. Treasury bills remained the largest reserve asset, valued at roughly $123 billion.
Tether also reported $4.5 billion in net operating profit during the first nine months of 2026, including $1.5 billion in the third quarter, with much of its earnings generated from U.S. Treasury bills and reverse repurchase agreements.
While Tether's latest report points to a pause in gold accumulation, Jefferies noted that its estimates may understate the company's total physical gold exposure.
The analysts explained that Tether's gold demand comes from three sources: reserves backing USDT, bullion backing XAUT and separate investments held on the company's balance sheet.
The first two categories are disclosed through the company's reserve reports, but its private investment holdings are not fully transparent.
Jefferies noted that Tether CEO Paolo Ardoino has previously indicated that the company intends to allocate between 10% and 15% of its investment portfolio to physical gold, separate from the bullion backing its digital tokens. The analysts said Tether has not announced any changes to that strategy.
The latest reserve data also comes as other banks increasingly recognize Tether's growing influence in the global gold market.
In a report published October 29, ahead of Tether's latest reserve disclosures, analysts at Société Générale described the company as an increasingly important participant in the physical gold market, comparing its growing holdings with those of central banks and major gold-backed exchange-traded funds.
Beyond the latest quarterly decline, Société Générale said Tether's rapid expansion highlights a fundamental shift in the structure of global gold demand.
The French bank described Tether as a hybrid institution, combining characteristics of a central bank, which holds gold as a reserve asset, and an ETF, which holds bullion to provide investors with direct exposure to gold prices.
The analysts noted that Tether's gold holdings had grown at an annualized rate of approximately 31% since early 2023, compared with 13.6% for gold-backed ETFs and 1.8% for central banks.
The bank estimated that Tether was the fifth-largest net buyer of gold globally since 2023, accumulating 87.5 tons through June 2026.
Although the company's latest reserve data suggests that its buying activity is not immune to quarterly fluctuations, the analysts said the broader growth of digital gold products could introduce a significant new source of demand for physical bullion.
Société Générale estimated that the 15 largest gold-backed cryptocurrency tokens represented more than $6 billion in market capitalization and approximately 45 tons of gold exposure in October. Trading volumes across these products had exceeded $150 billion so far this year, surpassing the record set for all of 2025.
However, the bank cautioned that digital gold remains a relatively small part of the broader market and could introduce additional volatility as investors increasingly trade bullion through blockchain-based products.
The analysts noted that tokenized gold investors may have shorter holding periods than traditional gold investors, potentially amplifying selling pressure during market corrections.
See live precious metals prices for gold, silver, platinum and palladium — in USD, CAD and 12 more currencies.
