The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK ( Insider Monkey) -- Gold stocks are quite popular among hedge funds these days, and for good reason.
John Paulson, who is very bullish about the precious metal, made $5 billion by betting on gold in 2010.
As of Dec. 31, 2011, the largest position on the 13F filing for his Paulson & Co. was the gold exchange-traded fund SPDR Gold Trust (GLD), in which Paulson had more than $2.6 billion invested.Besides Paulson, there were 55 other money managers bullish about SPDR Gold Trust. In total, they had $8.2 billion invested in the position. Another gold ETF, Market Vectors Gold Miners ETF (GDX), was also popular with hedge funds last year. It was held by 41 hedge funds at the end of last year. In addition to ETFs, hedge funds were also bullish about companies engaged in producing gold, such as Barrick Gold Corp. (ABX) and Newmont Mining Corp. (NEM). There were more than 40 hedge funds with these two positions in their 13F portfolios at the end of 2011. For instance, David Einhorn's Greenlight Capital had $60-plus million invested in Barrick while Jim Simons' Renaissance Technologies had nearly $90 million invested in Newmont. Other gold stocks with significant hedge fund interest are Goldcorp (GG), Kinross Gold (KGC), Allied Nevada Gold (ANV) and AngloGold Ashanti (AU). But is gold truly worth investing in? Or is it overpriced relative to other commodities? Let's compare the historical price of gold with commodity indices. We are going to use spot gold prices and two commodity indices: S&P GSCI (formerly the Goldman Sachs Commodity Index) and the Thomson Reuters Equal Weight Continuous Commodity Index, or CCI. S&P GSCI is a broad-based index mainly weighted in energy (80%), agriculture (10%), industrial metals (6%) and precious metals (2%). CCI is comprised of 17 commodity futures that are continuously rebalanced to maintain equal weighting. Unlike GSCI, which can overweight the energy sector, CCI provides relatively even exposure to all commodity subgroups (energy 18%, metals 24%, soft commodities 29% and agriculture 29%).