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Gold Returns Put Dow at 50,000

Thursday, 13 May 2010 | 12:07 PM ET

If the Dow Jones Industrial Average posted the same returns as gold over the last 10 years, the benchmark for U.S. stocks would be over 50,000, according to Bespoke Investment Group.

The metal has increased for ten straight years, producing returns of about 17 percent annually.

“Even the guy who wrote ‘Dow 36,000’ back in October 1999 would have been right!” wrote Paul Hickey of the always-provocative Bespoke research team, in a note to clients last night.

This year alone, the price of gold is up 29 percent in Euro terms and if the stock market posted that kind of gain “people would be calling it a bubble.”

But you won’t hear much bubble talk about bullion from market pundits these days. With the European Union crumbling and central banks around the world debasing their currency by printing money, the precious metal seems to have a solid gold fundamental story behind it. Gold was flat in trading today, a day after hitting a new all-time settle high of $1242.70.

The Dow Jones Industrial Average, which is unchanged over the last decade, treaded water today around the 10,880 level.

“As far as I can tell, every scenario seems bullish for gold,” said Brian Kelly, founder of Kanundrum Capital. “Either we get inflation and that’s good for gold or Europe falls apart and that’s good for gold.”

While global central banks and giant macro hedge funds are the biggest forces at work here, Bespoke’s research shows that rallies in gold may be getting extra fuel by retail investor participation via Exchange Traded Funds. In fact, money in the SPDR Gold Shares Trust hit an all time high of $47 billion today.

Despite the envious 10-year track record for gold, there will always be doubts by many veteran traders that these kinds of returns can’t continue. Gold, after all, is a commodity and merely a store of value with no income underpinning it. Throughout history, the metal has simply been worth how much another person is willing to pay for it. This has led to some violent sell-offs in the past.

“My concern is that no one can give a scenario where gold goes lower,” said Guy Adami, former head gold trader at Goldman Sachs and current ‘Fast Money’ player. “That worries me.”

For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.

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