The dollar's bearish trend is well established...and actively nourished by the Federal Reserve itself. Ben Bernanke has promised to erode the dollar's value...and we believe him. So does billionaire hedge fund manager, John Paulson.

Gold will continue to rise, Paulson predicts, "in proportion to the creation of paper dollars... In these times of uncertainty for paper based currency, I feel more secure in holding gold; [it] offers good protection against the paper currencies devaluation and even the possibility of generating a return."

Putting his money - and his clients' money - where his mouth is, Paulson has amassed sizeable positions in various precious metals investments.

The Paulson Fund's number one holding, representing 15% of its assets, is the SPDR Gold Trust (NYSE:GLD). The fund holds more than 31 million shares of GLD, along with 41 million shares of Anglogold Ashanti (NYSE:AU) and large positions in Gold Fields Ltd., Kinross Gold Corporation (NYSE:KGC), Novagold Resources Inc. (AMEX:NG), $40 Million of Randgold Resources (NASDAQ:GOLD), and Barrick Gold Corp. (NYSE:ABX).

Importantly, Paulson is not trading his gold positions, he is simply amassing them. Perhaps there is a lesson there.

The high day-to-day volatility of the precious metals tempts some of us non-billionaire investors to trade in and out of them. Probably, that is a temptation worth resisting.

Recently, an acquaintance made one of the best investment calls of his life...and one of the worst trades of his life. He did both things at the same time in the same market.

Sometime around last Halloween, this acquaintance concluded that silver was poised for a major move to the upside. The move he anticipated was so major, in fact, that he decided to purchase call options on silver, rather than just buying and holding some silver.

He loaded the boat on call options - buying various strikes with various expiration dates between November 2010 and April 2011. He established his largest position in far-out-of-the-money April calls. Hold that thought.

The friend booked small profits on his November and December options. But then his fortunes turned south. After hitting about $31 an ounce in early January, the silver price tumbled toward $26.

This sharp, swift correction wiped out his January and rendered his February calls almost worthless. He lost a lot of money. He panicked. As silver rebounded from its February lows, he salvaged what he could from his disastrous trade by unloading his February options for a large loss and his April options for a small loss.

Silver continued rallying...and rallying...and rallying. The friend watched. (Perhaps he cried privately). Today, the April options he sold for no gain are worth about eight times his original purchase price.

Too bad he traded silver, instead of simply buying it.

Your editor's friend is a big boy. He won't rue his unfortunate trade for long. But most of us probably would.

Bottom line: Silver, like gold, is money. Silver and gold are hedges. They are "anti-dollars." So if it's anti-dollars you want to own, just own them.

Daily Reckoning