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Gold hedge funds are kind of a funny term because gold in itself is a hedge against inflation. A hedge fund that invests in gold provides investors with financial security when an economy worsens or situations of political unrest arise. It hedges the risks inherent in its investments by engaging in different methods of investing. The money from investors is pooled and the fund’s investment portfolio is managed by a professional.

The aptly named Midas Fund invests solely in the commodity of gold, holding no gold stocks. Investors can feel safe that tracking the price of gold will provide them with an adequate measure of how the fund is performing. When investing in this fund, they do not need to conduct any research regarding various gold stocks.

The Oppenheimer Gold A fund is ideal for passive investors and has been around for quite a long time. The fund includes holdings in the commodity of gold as well as gold stocks. Investors can diversify their portfolio in gold simply by incorporating this fund into the portfolio.

Paulson & Co recently launched a new gold hedge fund earlier in 2010, piggybacking on its success betting against securities in the subprime mortgage industry. This fund invests in gold-related derivatives and gold stocks. Mr. Paulson himself invested $250 in his new baby, which banks on the fact that the dollar will decline further in value.

Though the word “hedge” is used in its name, most hedge funds have a goal of maximizing investment returns. Since hedge funds use different investment strategies, saying that they just hedge risks is untrue. The case is usually the opposite because managers of hedge funds often make speculative investments, causing the funds to present more risk than does the overall market. Only those who are very wealthy qualify to invest in hedge funds.