Smart Money Makes BIG Bets That Inflation Is Coming (GLD, GDX, OIH)

May 19, 2009 4:53 PM EDT

Smart money players continue to get long assets that would benefit from weak currencies including the U.S. Dollar, namely gold and oil.

Earlier this year, we learned that David Einhorn, who correctly predicted the fall of Lehman Brothers, got long gold through his Greenlight Capital hedge fund late last year. Einhorn cited the threat of inflation and the risks of so-called fiat currencies. Einhorn has gotten long gold through ETFs SPDR Gold Shares (NYSE: GLD) and Market Vectors Gold Miners ETF (NYSE: GDX). Einhorn's latest quarterly filing, showed that he increased his bet on gold. Einhorn raised his stake in GLD by 514K shares to 4,209,090 shares, his largest position at $385 million. He maintained his 3.2 million share stake in GDX.

Another hedge fund big, John Paulson, who made billions during the credit meltdown, has also showed his love for the 'yellow stuff.' We found out that Paulson had a fondness toward gold in March, when he bought an 11.3% stake in AngloGold Ashanti (NYSE: AU) for $1.28 billion, but we didn't know how deep his conviction was. But Paulson's latest 13F filing showed that his love goes deep. For the quarter ended 3/31/09, Paulson's hedge fund showed a new 31,500,000 share stake in SPDR Gold Shares (NYSE: GLD), his largest position worth $3 billion. Paulson also showed a new 17.3 million share stake in Gold Miners ETF (NYSE: GDX), worth $649 million. Paulson also showed a new 18.3 million share stake in Gold Fields Ltd. (NYSE: GFI) and raised his stake in Kinross Gold Corporation (NYSE: KGC) to 30.8 million shares. In the oil patch, Palson showed a new 10.3 million shares stake in Petro-Canada (NYSE: PCZ) and a new 9 million share stake in Schering-Plough Corp. (NYSE: SGP).

Yet another smart money player, PayPal-founder Peter Thiel got very long oil through his Clarium Capital hedge fund. Thiel built a new 6,786,700 share stake in Oil Services HOLDRs (NYSE: OIH), worth about $667 million.

What this data suggests is that some of the smartest minds in finance are positioned to benefit from inflation. While it is hard to see inflation now, with falling home prices and layoffs, these players are betting that it is coming. I think they are right.

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• Greenlight Capital
• David Einhorn
• Lehman Brothers
• Paulson & Co. (PCI)
• Clarium Capital Management
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• Peter Thiel

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