I was told this as well, in Bonavista, by a born-and-bred Newfie. But looking at the map I see that Fogo, Twillingate, and Moreton's Harbour are lined up more or less east to west and so returning to Fogo would seem to be more like retracing your voyage than completing a circle. But perhaps local wind and current patterns mean more in this context than compass bearing. According to Neil Rosenberg's notes about "I's De B'y" in Vinland Publishing's Newfoundland song book, the song dates from the 19th century, sail-and-oar days. Rosenberg says nothing about "circle", but apparently "gravel" as in "up to her knees" is a local dialect word for "mud" and does not refer to a whole bunch of tiny little rocks at all.