'Smart Money' Betting on Gold and Housing

After hitting a record $1416 per ounce on Monday, gold has taken a bit of a drubbing. On Wednesday, gold traded as low as $1372 before settling down nearly $26 to $1383.

Still, gold has been a great bet for the past 1-, 3-, 5- and 10-year periods...and almost everything in between. Gold's stellar performance has attracted interest from some of the most successful hedge fund managers, including John Paulson, whose firm counts AngloGold, Kinross Gold and the SPDR Gold ETF (GLD) among its top 15 equity holdings.

"A lot of people who bet against housing and did very well have shifted over to gold," says Wall Street Journal staff reporter Greg Zuckerman, who chronicled Paulson's bet against the housing market in The Greatest Trade Ever.

In addition to Paulson, whose gold fund was up 33.6% this year as of November 30, according to Reuters, Greenlight's David Einhorn and Passport Capital's John Burbank are also notable gold bulls.

As was the case with housing, none of these hedge fund managers have traditionally been gold investors, but they've quickly educated themselves. And Zuckerman notes Einhorn and Burbank are holding and storing the metal itself vs. betting on gold equities or ETFs.

"They don't actually think gold is going through the roof because inflation is right around the bend next week...but they're worried down the road," Zuckerman says. "We've flooded the system with money...and the only way to protect yourself is through gold."

Among the recent crop of hedge fund stars, Pershing Square Capital's Bill Ackman is notably absent from the parade of gold bulls. But he and Paulson do share a bullishness on another asset class: Housing.

Paulson, who recently bought a two-bedroom condo in NYC for a reported $2.85 million, has been quoted saying: "If you don't own a home buy one. If you own one home, buy another one, and if you own two homes buy a third."

Ackman, meanwhile, recently gave a presentation entitled "How to Make a Fortune," which lays out his bullish case on housing, as shown here.

Betting on gold and housing in tandem makes sense if you think the dollar is going lower and inflation is going to rise, as "hard assets" do well in that environment. Of course, if the dollar collapses, as many gold bugs like Peter Schiff predict, that won't be good for the economy or the housing market.

Notably, Ackman's bet on housing is predicated at least in part on his generally bullish outlook for the economy and America, which may explain why he's not jumping on the gold bandwagon.