As a longtime bull on gold, I was thrilled last week to see my "best idea" investment at all-time highs at $1,226. Now, it's off almost a hundred bucks, more than 7%, in less than a week. Should gold bulls be worried?

Sure. Investors should always be worried. And not just when there's a big move in prices that gets your attention. Stocks have been frozen in a go-nowhere trading range for more than a month, after a rally of historic proportions -- that should worry you, too. When your money is at stake, everything that happens and doesn't happen should worry you.

For me, the gold situation is especially worrisome simply because it's hard to get your mind around any market so volatile. Normally, when you look at a chart, you can see prices seesawing around in what pop out intuitively as "trends." You can even draw "trend lines" on charts, and when price movements in a new direction "break" those lines, it's an obvious signal that something important has changed, and deserves further examination. But what do you do in a high-momentum market where prices are moving in one direction so quickly that you can't even draw a trend line? That's the problem with gold now.

I don't mean to indulge in investment astrology here by delving too deeply into "charting" or "technical analysis." But it tells me something valuable when I find that the only vaguely sensible-looking line I can draw on a gold chart puts the trend price now at about $1,075. That's 4% below $1,120 or so, where we are now -- on top of the 7% drop we've already had. So if gold falls through that trend line, it'll already be off more than 12% from the high last week. What am I supposed to do, sell? After it's already dropped 12%?

Even if it does, it'll still be 7% above where it was last quarter-end, the last time it dallied at the $1,000 level. From there to last week's high at $1,226 was more than a 22% run in just 10 weeks. The reality is we're talking about a market so volatile that basically anything can happen -- and none of it may mean anything at all.

To put it into the language of charting, in the last couple months gold has gone "parabolic." In other words, prices have gone from a normal, gentle angle of ascent into a period of pretty much straight up. Some investors treat that, in and of itself, as evidence of a top. They think it implies panic buying, a mania, irrational exuberance. Like the Nasdaq hitting 5,000 in early 2000.

But it's not that simple. Sometimes a parabolic market, if you're just patient, will fit into a larger structure that is much more sensible. For example, in the run-up to Nasdaq 5,000, there were actually a series of parabolas over a period of more than a year. Each time, investors said surely this is the top. They said it at 3,000, and the Nasdaq went to 4,000. Then they said it at 4,000, and then the Nasdaq went to 5,000.

They were finally right when they said it at 5,000. But man, oh man, had they been wrong all along. A lot of money got left on the table.

The same thing could be happening with gold. Fine -- there was a parabolic run from $1,000 to $1,226. Now it's in a sharp correction. But let's say it is just a correction, not the end of the bull move. Let's say the gold price stabilizes somewhere above $1,000. A that point, time will have passed, and what do you know -- the chart won't look so parabolic anymore. We'll even be able to draw a very conventional looking trendline using the bottom point of the correction to anchor it.

Suddenly, the chart of gold will be manageable again. It will be a portrait of a fairly conventional bull market, punctuated by a large speculative oscillation in the last quarter of 2009.

Make no mistake about it -- speculation has been involved here. For example, it's been reported that Paulson and Co. -- the hedge fund run by John Paulson, the visionary investor who made billions betting against subprime mortgages before anyone else had even heard of subprime mortgages -- has just established a gigantic gold position. By one estimate, he's accumulated over 100 metric tons of gold, which makes his position larger than the combined official gold reserves of Australia and Brazil.

When an investor like that wades into a market and establishes that kind of position quickly, it will move prices in a big way. When he stops for a while -- even if he doesn't sell any -- prices can drop back, simply because his bids aren't there anymore. But just because that's speculation doesn't mean it's wrong. Paulson wasn't wrong about subprime mortgages, and that was speculation, too.

The real question is whether there's an important and durable long-term theme that would justify rational speculative expectations of higher gold prices. There was such a theme underlying Paulson's call on subprime mortgages, and he made billions for himself and his investors.

What's the theme for gold? In a word, it's inflation. Gold is the only foolproof hedge against inflation. With governments around the world holding interest rates super-low, and running up unprecedented levels of debt to stimulate their economies and rescue ailing banks, inflation is inevitable.

But it's more than that. Gold is also a hedge against a general loss of confidence in currencies, and in government debt denominated in those currencies. I don't just mean the risk of a falling dollar. I mean the risk that all currencies will decline at the same time.

How can that be? If they all decline, then relative to each other, nothing has happened. Right? Wrong. Something very terrible will have happened -- all currencies together will have depreciated against all the real tangible things in the world that we use currencies to buy: food, cars, movie tickets and everything else.

That's what inflation is. It's not prices going up -- it's money going down. We may be looking at a world in which all the money everywhere goes down. How to hedge? Buy food? Cars? Movie tickets? Sure. That would work. But when there's a general inflation, you never really know which goods and services will go up a lot, which a little, and which -- perversely -- not at all.

There's only one thing we know for sure in a world like that. Gold is going higher. That's Paulson's bet. And it's mine, too. When this little correction in gold is over -- even if it looks very big and very scary right now while we're in it -- we're going to see much higher gold prices.