Below is a chart showing the ratio between the HUI and the gold price. The HUI, otherwise known as the AMEX Gold BUGS Index, tracks 15 of the largest and most widely held public gold producing companies and as this chart shows these companies are cheap relative to the price of gold. In fact they are almost at their cheapest level in two years.
A period like this, when the performance of the gold stocks is lagging the performance of the metal, is typically followed by a catch-up phase during which the stocks outperform the bullion. Therefore those investors who already have a position in physical gold should consider the mining stocks since they offer better value than gold right now and they are a way to gain greater leverage to the gold price.
In addition to being undervalued relative to the metal, gold miners have seen one of their biggest costs fall dramatically. Oil constitutes around 25% of the operating cost of a typical gold mine and as the chart below shows the price of oil has gotten considerably cheaper relative to the price of gold. This means the overall cost of producing gold has fallen, which is good news for the miners.