Discreetly to the left of the pile of stuffed Christmas toys, you will find The Line.

This part of Scotia Plaza in downtown Toronto is not what you’d call hectic, but traffic has been heavy enough lately to spur the bank into posting a large and uncharacteristic new sign on a silver podium, telling people exactly when the wickets will be open to sell them precious metals (best get it done by 4 pm). As you may know, Scotia is one of the largest bullion dealers in the country, with the goods coming up from legendary vaults built deep beneath King Street’s roadbed.

About the time an ounce of gold was touching $1,200 US, to set a new all-time high water mark, the line was long. And growing longer. Interestingly, the folks queued up were generally not in business suits, and more reflective of Main Street than Bay Street a few meters away. A woman with two toddlers, a guy in TTC overalls, a white-crested senior or two, middle-aged men in snappy casual coats and a determined-looking guy with a worn shopping bag. Full of cash?

A similar line stretched more than a block down Yonge Street, the last time gold was making headlines. Then the metal touched $870 an ounce – in 1979, almost 30 years ago to the day. Silver was heading for $50 an ounce, and there was talk of gold at $2,000, then $3,000. As things turned out, bullion was close to the peak, would tumble, and prove to be a disaster for anyone who bought it. A person in that line on Yonge Street would wait more than a quarter century just to break even, and still get no return for three decades of inflation.

So I watched those people in the glitzy banking hall on the first day of December, 2009, doing exactly the same thing, and wondered how it would end this time. Different? Or the same as always? Now even China, the world’s biggest bullion producer, is warning of a gold bubble.

If history’s any guide, there’s a high probability the people lined up are buying an asset at a price they may not see again for a long time. I could be wrong (that would be a shocker), but the pattern of human activity is unnervingly accurate. People tend to do things because other people are doing them, even when this means their behaviour causes unusual and unnecessary risk.

I alluded to this in a previous post. It’s why profitless dot-coms found buyers even at ridiculous P/E ratios; why people poured Nortel into their RRSPs at its highest level; why the Bre-X hoax lasted long enough to cost billions; why people think houses at their most expensive are worth snapping up; why they slept outside in Yaletown and on Bloor Street in recent days to buy unbuilt condos amidst a condo glut. In contrast, successful investors look at other things – asset allocation, diversification, technical analysis, company ratios, the elements of supply and demand and macros – before they act. Those who buy on headlines (greed) and sell on TV news (fear) usually get it wrong.

As far as Canadian real estate goes, could the times be more telling? A new bank report confirms affordability is now at one of the worst points in history – despite the lowest mortgage rates on record. In other words, there’s only downside.

But not in The Line. All you see is the head in front of you.

Housing affordability has plunged - despite
the lowest mortgage rates ever.


Garth's latest podcast is here.