Are hedge funds (hedge fund news) about to get snookered in the gold market? They are certainly not afraid to load up and hold. Gold is John Paulson's (John Paulson news) largest single position. His firm's $3.4 billion stake in the SPDR Gold Trust "equates to a greater tonnage of the metal than Australia holds," notes the Financial Times.

Other gold converts in the hedge fund industry include Soros Fund Management, Tudor Investment Corp, Greenlight Capital and Third Point.

It's unclear when these funds bought in. But the price of gold has been on a major tear. So many of them may have done well on paper. Bullish funds seem to think that price of gold--now around $1,200 an ounce--will continue to rise, to at least $1,500 before a correction takes root. There's two reasons, quite related. For one thing, fear of a double dip recession is growing. At the same time, there are concerns that inflation may rear its head as central banks continue to ease. We'll just have to wait and see.

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