All That Glitters….

The age old saying is actually ” all that glitters is not gold”, but that was too long for a blog title. The aphorism is a warning that dates back to Shakespearian time, when originally it was reported as ” all that glisters is not gold”.

So, who cares? Well, no one really cares about the origin of a saying I suppose, however, the lesson contained in the saying could prove to be more relevant today than dating back to William Shakespeare himself.

This week almost everyone in the North American Hemisphere breathed a huge sigh of relief with the FOMC meeting on Wednesday. It seemed that the Santa Claus rally is in full effect, and it will indeed be a Merry Christmas, and a Happy start to 2024. While that would give everyone the feels, and make everyone merry and bright – we deal in the world of finance and mortgages – and you can’t pay your bills with feelings. 

While I have made my feelings on this week abundantly clear, I also recognize the power to disagree and have a different opinion. In fact, the differing opinion is what makes a market – you need someone to take each side of the trade, or the market doesn’t work. If everyone thought yields on bonds were going up, no one would want to buy a bond, so there would be no market. Housing is the same. If everyone thinks housing will drop – no one will buy, they will simply wait for a lower price.

However, I feel almost a dedication to letting people know about some of the more ” off the beaten path” types of signals and charts I watch. While many in the mainstream financial media will ignore, or simply tell you it is different this time, I will let you know how something might just impact your life, and mortgage career.

Getting back around to the title of the blog, I want to look at gold. Yep, the shiny, heavy, yellow metal that we all know. All that glitters is not gold, worth one’s weight in gold, etc. etc. the sayings about gold could fill an entire blog post. But today I want to focus on gold’s ability to tell the future. Yes, you read that correctly. Gold is extremely reliable as a fortune teller of the future to come. There are no tarot cards, there are no neon lights, and no little shop in the seedy part of town though. 

Gold is a great commodity that is used in everything from electrical to dentistry. I mean seriously, who doesn’t love a set of gold grilles? However, gold is also a very heavily traded commodity on the world market. Gold used to back all the currency floating around, however governments found it easier to spend like drunken sailors without a gold back, so they let the currency float in 1971. Ironically, if you look at financial history, you will see that the cost of living and wages became uncorrelated ever since we stopped backing currency with gold. I am sure it is just a coincidence!!

What has me worried is that gold has been on quite a tear lately. Gold can do well under a lot of scenarios such as high inflation ( check ), lower interest rates, and financial instability ( check ). However, the one condition gold does extremely well in is when there is a big problem coming. Gold can foretell an issue by about 12 months. I say ‘ about’ as financial planning and forecasting is more of an art than a science. The last 2 times gold rallied hard was, most recently Jan/Feb of 2019. Now, I don’t need to cover what happened in Feb/Mar of 2020, but you get the idea. Gold also rallied hard leading into the GFC in 2007. Now, people will argue that gold also did well from 2009 until 2015 – which it did, but that was expected. Interest rates were dropping, and gold does well when rates come down, so that makes sense. To see gold rallying this year WITH rates rising, leads me to believe that gold is up to its old fortune telling tricks again. 

I would predict, that based on golds recent price action, we could start to see a liquidity event in the back half of 2024. A liquidity event could be a credit shock, it could be credit drying up, it could be something similar to a 2008 style credit crunch – we just don’t know. That doesn’t mean the party won’t rage on for a bit until that point though. We will most likely see rates come down, equity markets hit all time highs, and continue to make new highs, we may see real estate rebound, and every asset that is considered ” risk on ” will be on fire. However, like the calm before the storm ,don’t be fooled.

I am not here to say that the world will explode, but I also want to temper the expectations of people who think we have turned a corner, and the all clear flag is out. I implore people to stay rationale, remain level headed, don’t get emotional about financial decisions, and for mortgage brokers, don’t get sucked into putting your clients financial future at risk because you think the worst is behind us. Ensure that the product you suggest meets the client needs – now, and for the term of the mortgage. Make sure your client is not allowing emotion – or recent good news to alter their judgement and decision, and most importantly keep in mind that things are never as good as they appear, and things are never as bad as the seem. Keeping an even keel in 2024 will ensure you can sail on into 2025.

Only time will tell if I am correct in my warning, and while this will have people arguing with me until the cows come home – the thing of it is, is that it isn’t my prediction. Gold is one of, if not THE oldest tradable commodity. There is literally over 5000 years of history on gold. Taking the other side of this argument means you are betting against 5000 years of history. Not impossible to be right, but the percentages are not in your favour. Make sure that you aren’t setting your client up for potential failure on a low probability win. 

Of course, in any market you always need people who take the other side in order to make a market. We need stock brokers telling people to buy, we need crypto scam artists to convince people to trade their hard earned money in for coins, and of course, we need realtors proclaiming that if you ” don’t buy now – you never will”. This is what makes a market. Of course I will be happy to take the side of 5000 years of history, and listen to the charts. I managed millions and tens of millions of client dollars through the last 2 bad spikes in Gold ( 2007 and 2019 ), and it was not fun. I learned from 2007, and it saved my ass in 2020 when the stock market literally collapsed over night.

All that glitters may not be gold, however, the person who has the gold makes the rules…

*In the interest of full disclosure, I currently own gold. I am long gold in USD, and short gold in CAD, and expect the price to go higher. The blog post is not intended to be investment advice, nor should it be relied upon for financial planning purposes. Do your own research before investing.