Gold and silver haven’t made any progress for over a month now, and stocks in general have been in the doldrums, but precious metal producers have been earning money hand over fist, and their stocks have found some much-deserved traction.

From our index comparison page, here is a chart showing the outperfomance of gold producers (green) and silver producers (lavender) when compared to base metal producers (blue), which are more sensitive to economic downturns.

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Checking out the Solid Gold Miners list in Editors’ Picks, I see that even big miners like Newmont, Kinross, Newcrest, IAMGOLD, Centerra, Barrick and African Barrick are trading at 15x operating cash flow or less, even with their stocks way up. Going by 2011 cash flow, these figures are going to look even better, particularly for miners with a heavy silver component, as silver is much higher this year than last.

Gold’s correlation with other commodities and even the stock market comes and goes. At times, it moves almost tick-for-tick with oil and base metals, at other times it has a strong negative correlation, and sometimes there is no discernable correlation at all. The last few trading days have produced a negative correlation with the “risk trade” (energy, base metals, stocks), and a positive correlation with the Swiss Franc, currently the world’s preferred safe-haven currency.

Gold stocks, however, have reverted to their unfortunate habit of falling whenever the broader equity markets experience a touch of panic. While it can be bewildering to watch gold move one way and gold miners another, value investors must be lining up with buckets the lower the XAU:Gold ratio falls (see chart below). This classic metric of the price of gold miners is nearing the all-time lows set in 2008. The lower it goes, the higher the potential earnings yield for owners of the shares.

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The place to look to take immediate advantage of this situation would be currently producing gold miners. In fact, our Gold Producers Index was the best of a bad lot on Friday, with a decline of just 1.7%, compared to 5.3% for Gold Explorers (and some much larger declines for industrial mineral companies).

Gold stocks don’t traditionally come to mind when you think of value investing, but if things continue in this fashion, we could find some great assets and solid cash flows for a bargain.

Protip: keep an eye on the Solid Gold Miners and Value Gold and Silver lists. These are updated each night using an automatic screen for certain value criteria (balance sheet tests, stock price relative to resources, etc).

This classic indicator is flashing the strongest buy signal for gold stocks since early 2009, when they were just starting to recover from the 2008 crash.

Here’s the chart:

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Site Tip: to find the cheapest gold stocks, start with two lists in our Editor’s Picks section (updated daily).

1) Solid Gold Miners: these stocks are producing gold already, earning money (!) and are cheap relative to their cash flows.

2) Value Gold or Silver: this list includes companies exploring or developing properties that are not yet producing. Companies must have 43-101 or JORC compliant resource estimates in the indicated category or better, not have too much debt relative to equity, and be cheap relative to their resources.

Click on any company in a list to see more details and investigate further.

Happy prospecting!