Last October, when gold slid violently from more than $900 to $700 per ounce, I felt very alone in highlighting the fundamental strength behind gold, and the undeniable value which had been baked into quality gold-mining stocks at those levels. Since then, the precious metal's jumped to $1,000 before beating a hasty retreat. With the media awash in mixed signals about gold's future, I think it's time for us Fools to step back and collect our wits.

The essential gold quiz
As the massive and sustained correction of 2008 made clear, gold can be an extremely volatile and punishing asset class for unsuspecting investors. While gold finished the year ahead of every major equity index in the world, that fact belies the angst of countless investors who may have arrived late to the rally, or been chased away on the way down. From Goldcorp (NYSE:GG) to Gold Fields (NYSE:GFI), the miners' declines were merciless.

To help prepare you for gold's next monster move, I offer this Foolish gold quiz:

  • What is your style? Are you a long-term buy-and-hold investor like me, or more of a swing trader looking to time those peaks and valleys? Given the highly complex set of variables in play, this Fool does not consider gold an appropriate venue for anyone in the latter camp.
  • How do you form your decisions about gold? The majority of gold investors are moved by fundamental drivers of the metal, like the state of the U.S. dollar or the prospect of inflation, while others are more attuned to technical analysis. I use both, but I place greater emphasis on the fundamental drivers and my resulting target price of at least $2,000 gold.
  • How much confidence do you have in your position? This critical question will help investors understand whether they are ready for the looming volatility in gold. I expect price volatility to increase substantially in the months and years ahead, with daily moves like this $90 leap after the Lehman Brothers bankruptcy providing a mere glimpse of what's to come. To avoid selling into weakness, I recommend that Fools reflect upon their own tolerance level for gold's painful corrections.

Where will gold go next?
The veritable rush into gold, triggered by spooked investors fleeing the specter of massive fiscal intervention and a deteriorating national balance sheet, has become something of a stampede. That sort of situation seldom helps keep prices stable. Hedge funds and professional traders, who use statistical algorithms to guide their moves, may occasionally test the mettle of the masses. They're hoping to leverage short positions to spook newcomers right out of the safe haven they were spooked into, targeting key support levels in the process.

The Fort Knox of stock talk
Anyone invested in gold who's not visiting the CAPS blogs is missing out on a wealth of free information and lively debate. In one informative post, CAPS All-Star GoodVibe4Ever detailed an array of technical indicators that indeed suggested some short-term pressure building against gold near the $1,000 mark.

I countered with an alternate interpretation of the charts that wove fundamental analysis into the picture; in short, I expect a far more modest correction than GoodVibe suggests. I took the opportunity to shave a small portion of profits from the recent rally in hopes of buying back in at a lower price. That's all the action I'm willing to take on the basis of technical analysis.

A golden future?
For those still undecided about gold, this dip could provide some excellent opportunities. Major miners Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM) both booked substantial operating profits in the fourth quarter, despite an average gold price below $800. This bodes well for the industry, especially for low-cost intermediate miners like Agnico-Eagle Mines (NYSE:AEM) and Yamana Gold (NYSE:AUY).

I am concerned, however, for the well-being of those who may decide to short gold. With the global financial system still highly distressed, I can scarcely conceive of a riskier strategy. True, a correction to test $900 -- or even $800 -- could now be unfolding. But I could just as easily see gold leaping beyond $1,200 in a heartbeat.

Swing traders (and especially shorts), beware. The multiyear bull market for gold remains in full effect. No one can predict what tomorrow's monster move in gold may be; instead, I counsel gold investors to tune out most of the noise regarding short-term price swings and focus more upon fundamental analysis.

All that glitters might be further Foolishness:

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view on this precious metal's prospects. The "Gold" tag at Motley Fool CAPS lists 35 companies; you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker sees a pot at the end of the rainbow for investors who obtain exposure to gold. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Agnico-Eagle Mines, Silver Wheaton, and Yamana Gold. The Motley Fool has a gilded disclosure policy.