Like many commodities, gold is priced in dollars. So a falling dollar generally means that gold prices will head higher, since more dollars will be required to buy the same ounce of gold. In that environment, you'll want to own gold stocks that are leveraged to higher gold prices. A good starting point is Newmont Mining (NYSE:NEM) for more conservative investors. But if you are a bit more aggressive, consider companies like development stage NovaGold Resources (NYSEMKT:NG) and high cost producer IAMGOLD (NYSE:IAG).

Big, unhedged

One of the ways miners protect themselves from often volatile precious metals price swings is by hedging. However, that protection can limit upside potential, too. So, if the dollar is falling a miner that doesn't hedge, selling gold at the spot price will have the most upside potential. Newmont stopped hedging in July 2007, with then CEO Richard O'Brien explaining, "With the elimination of our gold hedge book, we have renewed our commitment to maximizing gold price leverage for our shareholders."

Gold miner panning for gold

Image source: Getty Images.

That's great news if you expect the dollar to fall, but sometimes markets don't do exactly what you expect. That is why Newmont is a good choice for more conservative types. Newmont is one of the largest gold miners in the world and has an investment grade BBB credit score from S&P. A downturn in the price of gold would no doubt hurt Newmont, but the gold miner should have the financial wherewithal to keep mining. Thus, Newmont offers a decent balance between safety and upside exposure to rising gold prices for those not willing to take on huge risks.

A bit more aggressive

The other way to take advantage of rising gold prices due to a falling dollar is buying miners with high costs or big development projects. There are any number of options here, but you might want to take a look at NovaGold. This miner doesn't currently have any operating mines, but it's a 50% partner in two development projects, Donlin Gold and Galore Creek.

Donlin Gold is the big deal here. This project is a partnership with Barrick Gold (NYSE:GOLD) and has the potential to be one of the largest pure-play gold mines in the world. In a recent news release announcing solid development progress NovaGold CEO Greg Lang noted, "Donlin Gold's size, grade, production profile, exploration potential, mine life, community support and jurisdictional safety render it a unique asset in the gold industry." Barrick has also had good things to say about Donlin, but because of the giant miner's size it won't have as big an impact on its top and bottom lines.

A graph showing that Donlin would be among the largest gold mines in the world.

Donlin is a big gold mine. Image source: NovaGold.

If the dollar falls and gold prices go up, the value of Donlin goes up in a big way. In fact, positive news on this project even allowed NovaGold's stock price to advance 18% in June -- a month in which gold prices were relatively weak. This isn't a stock for conservative types, since NovaGold doesn't have any operating mines at this point (it's just spending money on development projects). But if gold prices go up, NovaGold should see a leveraged benefit.

As for miners with high costs, take a look at IAMGOLD. It's expecting all-in sustaining costs of as much as $1,080 an ounce in 2017. While it actually produces gold (unlike NovaGold), it needs relatively high gold prices to turn a profit. But the key here is that IAMGOLD has high costs compared to its gold mining peers.

That's a bad thing if gold prices are falling, but a really good thing if gold prices head higher. That's because IAMGOLD's top and bottom lines will benefit more from rising gold prices. Here's a (very) simplified example. If gold goes from $1,200 an ounce to $1,300, IAMGOLD goes from making $120 an ounce to $220 based on its all-in sustaining costs -- an over 80% increase. Barrick, with all-in sustaining costs of around $740 an ounce, would go from making $460 an ounce to $560, a roughly 20% increase. Thus, rising gold prices will have a greater impact on IAMGOLD's share price. (There's a lot more that goes into the mining equation, but you get the idea.)

Three ways to play

There you have three ways to play a falling dollar's impact on gold. The most conservative, and the one I would personally favor, is unhedged Newmont, which doesn't limit its upside participation in the price of gold. Development stage miner NovaGold and high-cost miner IAMGOLD, however, will give you more bang for the buck (with more risk).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.