Gold dropped $18.80 yesterday to a two-month low.

We don't know whom to thank - calculating manipulators or panicking speculators. But we have two hunches. One, that the price of gold will probably drop below $600 before this correction is over. And two, that anyone who sells now will feel like a genius next week and a moron a year from now (We admit that we filched that last line from an article in this coming weekend's Sunday Times. We liked it so much we couldn't resist. Then, we realized that it was attributed to us! Readers will wonder how we get to read the papers before they are printed. But we have to have some trade secrets).

It was not just gold. Investors dumped whatever investments they considered too speculative for those they thought safer. A worldwide "flight from risk" is underway.

The trouble with "flights from risk" is that they are often going to the wrong airport. While emerging markets, commodities, and gold sell off - the Dow steadies, while the dollar and U.S. Treasury bonds rise. This is a little like picnickers fleeing the slopes of Vesuvius. Hearing the rumbling, they scramble into a jet, fly around the world, and then lay down their blankets on the side of Mt. St. Helens. Ah, home again! Back where never is heard a discouraging word...and the skies are not cloudy all day.

For now, the "flight from risk" seems to be full of speculators, carrying them from "risky" markets, such as the Bombay Stock Exchange, which dropped 4.7% yesterday, over to the New York Stock Exchange, which rose modestly.

The Fed has tightened all the way to a funds rate of 5%. Meanwhile, Japan's fire hose of liquidity suddenly began to splutter and dribble. Then, the head Fed man stepped up and said right out loud that he was worried about inflation. Finally, the race speeded up yesterday: Asian central banks - from the Korean to the Indian - announced tightening measures. Even the Europeans declared they were girding their loins to fight inflation. The ECB raised its funds rate by a quarter of a percent to 2.75%.

Faced with this sudden binge of sobriety, of course, speculators took flight. Their faces twitched. Their knees jerked. Their palms began to sweat. And what would you expect? They boarded the "flight from risk," high-tailing it away from the exotic, foreign, and mysterious investments they were only just chatting up. They fled back into the arms of the old, familiar dollar. They came back to mama.

Alas, the old girl ain't what she used to be. Too many wild parties. Too much liquidity late at night. Too much smoke and mirrors. The years and abuse have taken their toll. In the dark night of panic, speculators may not notice the deep lines of debt on her face, the cheap makeup with which she covers up her deficits, and the hidden girdles and padding that buff out her faded posture and swindle her admirers. Wait until they get a good look at her!

Speculators, a notoriously fickle crowd, are quite capable of changing their minds - even in mid-flight. Right now, they see risk in gold and safety in paper. That their eyesight will improve is the abiding faith of The Daily Reckoning. It is what keeps us going.

When their vision is clearer, speculators will see things as their forefathers did before them. They will come to see the dollar as a risky piece of paper and gold as a sure store of wealth. They will come to see what foreign governments already know. Yesterday, we learned that the Russians have now moved as much as half of the foreign exchange reserves of its central bank into Euro and Sterling.

That speculators nonetheless fly away from gold rather than toward it proves to us that this bull market in the yellow metal has barely begun. When the bull really begins to rampage, speculators will run out of the dollar, not into it, and see every new drop of liquidity as more evidence that mama dollar has lost her mind.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.