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.

The increasing tendency for gold and silver to behave like safe-haven currencies instead of cyclical commodities has been a godsend for miners lately. On average, mining stocks have a higher correlation with broad stock indices like the S&P500 and FTSE than with metals prices, but when enthusiasm and demand for precious metals is at a fever pitch, as in the late 1970s to 1980, it seems that miners begin to distinguish themselves. I should note that the opposite is seems to be true at the other extreme – witness the 60% decline of the XAU Gold & Silver index from 1995-2000, while the S&P500 tripled.

Here’s a three-month view of our Base Metal Producer index vs. our Gold Producer index (you can play with more index comparisons here):

This month has not been kind to industrial resource stocks, since the broader commodity complex has been hit hard by traders anxious to unwind risk. For some perspective on how much unwinding has taken place, West Texas oil briefly traded under $80 this week, down from $114 this spring and $100 just three weeks ago:

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Dr. Copper is holding up a bit better, but is still down 14%:

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Not surprisingly, our Movers lists of best performing stocks over the past month are now dominated by precious metals companies. Here’s a snapshot, but you can see the whole list here and filter it by country or time frame:

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!

Bargain hunters should be thrilled, since there are some real values appearing in the market again. Many small stocks have retraced their entire 2010 rally, even as gold hovers over $1500 and silver holds $35. With the dollar still in the doldrums, commodity prices levitating, and interest rates near zero, something has to give.

A bit of fear has crept into the markets as a whole since May, but resource equities have been hit particularly hard, and the losses have been magnified for juniors and explorers.

Our gold explorers index, for instance, is down over 20% in 2011:

Site Tip: The best place to see which companies have become cheap is the Editor’s Picks section.
The lists refresh daily, taking into account the latest stock and metal prices.

The following conditions, which are met at present, are very often seen prior to run-ups in gold shares:

1) Gold:XAU ratio is high
2) Falling long-term interest rates decrease attractiveness of bonds.
3) Weakening economic statistics (industrial production, shipping, employment, etc).
4) Negative real interest rates (some inflation measures are higher than borrowing costs).

For more, see John Hussman’s essay, Going for the Gold.

Our gold indices (gold producers index and gold explorers index) have each been lagging the metal, and in the case of gold producers, steadily declining over the last 12 months. Investor sentiment is neutral at best on precious metals right now, so the sector is as attractive as it has been for some time.

The biggest issue in my mind is the recent strength in the dollar, which had dismal sentiment readings for several months, but is now looking attractive again as credit stress creeps back into the picture (remember the great dollar rally of 2008-early 2009).

Sure, gold stocks have done great lately, but these are sub-sectors with even better performance over the last 12 months:

Zinc

Silver Explorers

Heavy Minerals

Rare Earth Minerals

Iron Explorers

Gold producers actually have been laggards, despite what is setting up to be an awesome year for cash flows and profits.

See all the sub-sector indices here: http://miningalmanac.com/indices

We’ve made 15 new mining indices showing the 5-year performance of stocks in various mineral groups and industry sub-sectors. Take a look and see what patterns you can discover: http://miningalmanac.com/indexes

It’s very easy to us to create new indices based on almost any criteria (market cap range, mineral, country, exchange, etc), so let us know if you have any special requests. Index component companies are listed below each chart, and you can click through to compare them all in the datagrid.

BTW, did you know that iron ore explorers and rare earth stocks have been the hottest sectors over the last 12 months, or that the diamond and uranium sectors remain closer to their 2008/2009 lows than their 2006 highs? Neither did we until we graphed them.

Indices update every night from 23:00-24:00 UTC using daily closing prices.

Check out our new company pages. Along with several visual improvements, we’ve added a Value Report Card on each company’s main page, showing at a glance how the stock ranks on key value investing metrics. See below at upper right:

We launched in beta last March with 400 stocks (almost all Canadian) and only provided their company-wide resource totals. Now we list 1625 stocks from Canada, the US, UK and Australia and break down their resource and production numbers by property. That’s many thousands of properties, and soon we’ll load all of them into a google map.

The specialized new indexes we’ve been talking about are all done as well — they’ll be loaded up within a couple of weeks. One thing that these reveal is the HUGE performance discrepancy between large-cap and small-cap miners since the 2008 crash. Everything fell in the crash, but it seems that most small explorers never recovered — their stocks just went down and stayed down, whereas the majors rebounded to all-time highs.

This makes small-cap resource stocks the biggest bargain ever relative to metals prices and large miners. The caviat of course is that these companies need constant financing to stay alive and prove out their resources, and checks have been hard to get. Those among you who can afford to bankroll some drilling can get a lot of stock for your money and probably dictate your own terms.