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Real Estate, the Dollar, the Euro and Gold & Silver and Exports

Listeners’ Questions, Peter’s Answers- October 7, 2011

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Wesley from St. Louis, MO
The house down the street from me sold for $90,000 in a short sale this month. That would be about 60 ounces of gold. It sold for $145,000 in 2005, which would be 377 ounces of gold. Does that mean that declined in value over six times?

David from Berea, KY

If the demand for homes continues dropping, while supply keeps rising, why are builders still building homes? What affect will inflation have on home prices? Will these two forces — inflation vs. supply/demand — counter-act each other or will one of them overtake the other?

Jim from Payson, AZ
Germany is coming under more political and financial pressure to bailout the other irresponsible countries in the EU. I’m sensing a split is coming in Europe. How would financial markets be impacted if Germany decides to shield themselves, breaking away from the union with like-minded countries while simultaneously creating a currency that’s more sound than the dollar of the Euro? How would this effect gold/silver?

Peter from Toronto, Ontario (Canada)
What are your thoughts on the Canadian real estate bull market? You’ve previously voiced concerns about a “bubble” up here. It seems the U.S. Fed announcing it’ll keep interests rates low until 2013 only fuels this real-estate market, as the Bank of Canada tends to raise rates in lock step with the United States.

Monir from Southampton, Hampshire (United Kingdom)
I cannot fathom how a weak currency helps exports. Surely having a weak currency increases the cost of production and therefore increases prices? For example, the Bank of England printed $200 billion, which devalued the sterling, led to increases in fuel prices, which in course led on to increase cost of items. Am I missing something?