The golden hedge

Gold has been making headlines again recently. In mid-August it was revealed that three of the largest hedge funds in the world had bought so much of the stuff that they had to report it to the US authorities. George Soros had bought a $600 million exposure, while Eric Mindich at Eton Park had $800 million invested. Topping those two is John Paulson known for his $25 billion bet against subprime mortgages he is understood to have a $4 billion position in gold.

These hedge funds are known for taking positions, both long and short, that go spectacularly correct. But the key to longevity for a hedge fund is to not lose money. And in...