John Paulson Says Gold Provides Protection Against Inflation, Devaluation

The message may be familiar, but what's significant is who's saying it. John Paulson is the head of the third-largest hedge fund, and he's made a big bet on gold. It was his next big move after betting on the subprime collapse. So far, the bet's working out well for him.

The virtue of gold, according to him, is that it serves as a good hedge against inflation and devaluation.

"[We] must look at the currencies in relative terms. The UK is committed in the same way that the United States is in terms of monetary stimulus. The Euro has its own problems. In these times of uncertainty for paper based currency, I feel more secure in holding gold," said Paulson in an interview with a French newspaper.

"Given the risks of inflation in three to five years and the volatility of the Euro, gold offers good protection against the paper currencies' devaluation and even the possibility of generating a return on fixed investment."

He also said the current financial clime is particularly good for gold. Another hedge fund star who's put serious money into gold is David Einhorn.