Billionaire hedge fund manager John Paulson has soured on Barrick Gold (GOLD 1.33%). According to his latest regulatory filings, Paulson sold his options to purchase 360,000 shares of Barrick in addition to trimming his stake in SPDR Gold Trust (GLD -0.74%).

But should investors rush for the exits as well? Probably not -- there's a turnaround taking shape at the troubled gold miner. 

A turnaround is brewing
Since taking over in June 2012, Chief executive Jamie Sokalsky's new mantra has been to focus on better capital management and optimizing shareholder returns.

In response to falling gold prices, the company has been forced to make some tough decisions. During the second quarter, Barrick wrote off $8.7 billion in value from its global assets, slashed its dividend by 75%, and cut its administration headcount by 30%. To bolster profitability, Barrick plans to sell, close, or curb production at 12 of its 27 mines. Any operations with production costs above $1,000 per ounce will undergo mine-plan adjustments or be sold . 

It's been bitter medicine for investors to swallow. But like an overweight jogger returning to the gym for the first time in months, the painful process is necessary if Barrick is to get back in shape. 

Fortunately, Sokalsky's efforts appear to be already paying off. Last quarter the company's production costs fell year over year ahead of analysts estimates. Barrick reduced its capital spending budget by about $1 billion and cut its forecasted expenditures for year end . It's a complete shift from the Barrick of old. Sokalsky is no longer interested in growth for growth's sake, but rather, maximizing shareholder value.

Too much pessimism 
This impressive turnaround is taking place during one of the most challenging periods in the industry's history. Over the last few months, we've seen record outflows from gold exchange traded products . In addition to Paulson, we've seen other legendary investors trimming their SPDR Gold Trust shares including Daniel Loeb. Commodities bull Jim Rogers has even turned against the yellow metal. 

Have we reached a point of maximum pessimism? Now, I agree that the fundamentals for gold look awful with the Federal Reserve expected to taper its bond-buying program in the upcoming months. But with gold 30% off its all-time highs, hasn't this been priced in already? It's not like a more hawkish Fed will really come as a surprise to anyone at this point. If anything, we could be due for an upside surprise if the Fed remains dovish.

The miners are in even worse shape with the Market Vector Gold Miners ETF (GDX 1.57%) down 50% over the past two years. Even George Soros threw in the towel last quarter, selling his entire position in the fund .

But there are budding signs of hope for the miners. Over the past year, the equity index has trailed the price of gold by 20% and is trading at the lowest valuation relative to the metal in decades. In addition, several other big miners are reining in spending and cutting costs. Last quarter, Kinross Gold (KGC 1.74%) announced that it cut capital and exploration spending, closed an office in Vancouver, and reduced the number of employees at its Toronto office by 7%. Yamana Gold has also cut its production targets in an effort to corral costs. It looks like the miners are getting their act together. 

Real concerns
Of course, Barrick faces real problems that should be legitimate concerns to investors. The company is burdened by high debt, and capital expenditures will remain elevated for years to come while its Pascula-Luma mine is built. If gold takes a dive below $1,200 per ounce, questions about Barrick's liquidity will resurface.

But as the world's largest gold miner, Barrick is well positioned to handle this possibility. Of the company's properties, 57% have production costs below $700 per ounce and another 18% are below $1,000 per ounce. With another (granted painful) reorganization, these properties would provide sufficient cash flow to fund operations.

Foolish bottom line
Now, I have to be careful when I take a position against legendary investors like John Paulson. But this feels like a normal capitulation, and that happens to the best of us. Watching the last of the bulls get squeezed out of their positions is typically a sign of the bottom.