Despite the likelihood of continued price rises, shares in goldmining companies remain undervalued.
With nothing standing in the way of a higher gold price, it's a wonder that shares in the miners haven't been rushed.
A price of $US2000 an ounce seems a foregone conclusion based on a survey taken by Bloomberg at a recent conference of gold analysts and miners in Canada.
Some experts are even more bullish. ''I expect it to reach $US2000 in the next six months but how high it goes long term depends on how much money central banks print,'' a director of tip-sheet Fat Prophets, Angus Geddes, says. ''If the past is anything to go by, $US3000 to $US4000 would have to be on the cards.''
Advertisement: Story continues below It's the only investment to have risen in each of the past 10 years but few are calling this a bubble, except for billionaire hedge-fund speculator George Soros.
On the contrary, the price has dropped in real terms since 1980, despite the popular belief that gold protects against inflation.
Its price needs to reach $US2467 - it hit $US1921 two months ago but has since slipped below $US1800 - to be worth the same in today's dollars, says the head of investment strategy and chief economist at AMP Capital Investors, Shane Oliver.
Gold bugs, mind you, look at it the other way around, claiming that just shows how inflation devalues currencies over time and, as a result, an ounce of gold today buys lots more US dollars than it did then.
Whatever. There's no denying gold flourishes during economic uncertainty, of which there is plenty. Zero official interest rates in the US, Europe and Japan are great for gold because the cost of holding it, in the sense you could be earning an income on your money in something else, isn't high.
Then there's the global problem of too much sovereign debt, another bonus for bullion.
Besides, you have only to consider what it would take for gold to fall. That would be a solution to the European debt crisis (no sign of that), a US recovery (getting there) strong enough to cut unemployment (oops) and a stronger US dollar (are you kidding?).
The single biggest threat to gold would be positive real interest rates in the US , which would provide income and be an inflation hedge.
But interest rates are forecast by the US's own central bank to stay at zero until at least the middle of 2013 and inflation is running about 2 per cent a year.
No wonder the big central banks are lifting their holdings while more fund managers and advisers are keen to hold part of their portfolio in bullion as a counterbalance to shares and bonds.
The puzzle is why gold shares aren't doing better. It's not as if the currency is a problem. Even in Australian dollars the gold price is about $1000 above the production cost of the most expensive goldmine.
If anything, a strong dollar helps by reducing the cost of diesel and equipment at the goldmine, especially for offshore producers.
Even so, there's no denying labour costs are rising and recent production shortfalls haven't helped, either.
But the real reason is the popularity of exchange-traded gold funds (ETFs - see panel).
These are sucking up funds that would usually have flowed to goldmining stocks, which are suffering from the market's general pessimism and fear.
It's as if the market has forgotten that a goldminer gives you much more leverage to gold; for every share you own you get the gains from more production which you d'on't from a gold bar or an ETF.
A 33 per cent increase in the gold price would increase the value of an unhedged gold stock by about 70 per cent, says the head of Eagle Research Advisory, Keith Goode.
''The bottom line is at these prices the gold producers are minting money,'' he says.
The disconnect between gold and mining shares, which are being valued on a price of about $US1250 an ounce, also happened between 1979 and 1984.
When the re-rating came it was heart-stopping. Goode predicts the half-yearly results in February will be a catalyst for the market
re-rating gold stocks this time.
''Some gold producers' share prices could easily increase by 50 per cent,'' he says.
They include Alacer Gold (with an estimated net present value of $16 on a gold price of $US2000 an ounce), Focus (17¢) and Silver Lake Resources ($7.18).
A stock such as Newcrest - Australia's biggest producer, making it the BHP Billiton of bullion - lagging behind the gold price seems incredible.
It has the lowest cash cost of the miners at $US493 an ounce, which will drop to $US320 when the huge Cadia East underground mining project begins producing next year.
Yet in the past year when gold has climbed 25 per cent, Newcrest shares have dropped by the same amount.
Perhaps it's because the miner also digs up copper, the price of which has been falling of late.
Anyway, it's got Newcrest stumped. Its managing director, Greg Robinson, recently said there was a 15 per cent to 20 per cent discrepancy between the respective gold and share prices.
Although the market didn't like the last production report, Geddes says the stock has been marked down too far.
There's a Newcrest connection to one of his recommended stocks, Evolution Mining, which bought two mines from it and was formed from the merger between Catalpa and Conquest.
''This is a case of one plus one equals three,'' he says.
Evolution will have five goldmines, four of which are already producing.
Since Newcrest will be a 33 per cent shareholder, Evolution ''will probably get the pick of the small to mid-sized mines that Newcrest isn't interested in, which will make a difference to its growth profile'', says Geddes, who expects the stock to be re-rated after its $150 million rights issue.
While the managing director of research analysts Stock Resource, Grant Craighead, agrees that Newcrest ''is in a league of its own'', he says smaller miners operating in Asia and Africa have huge potential with little risk.
''A single project in a development or growth phase as it comes into production is effectively de-risking,'' he says, adding that the right countries in Africa - such as Ghana - presented little sovereign risk.
Gryphon Minerals and Integra are favourites because they're already producing and have growth opportunities.
Resolute Mining is revamping its operations, which will allow it to go ''from a shortish to a longish mine life'', Craighead says.
The editor of the mining-oriented tip sheet Sound Money, Sound Investments, Greg Canavan, suggests Medusa Mining, which has two gold and copper mines in the Philippines.
''It's been mining there for two or three years and there have been no [risk] issues,'' he says. ''It's undergoing investment to expand, so in the short term has halted production. Then we'll see an increase. Production will double in two years.''
Another goldmine, with a side operation in silver in the Philippines is Red5, which starts producing this month.
''It has very low costs with silver as a byproduct. The market is worried there will be teething issues, as there always will be. But it has cash in the bank,'' Canavan says.
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