Cash has long reigned as king, but a new monarch is conquering the markets this year: gold.

The dollar has been dethroned in the face of unprecedentedly low interest rates, a deep recession and a massively expanded money supply. Despite the equity market's recent run, the economic and investing environment is still awash in uncertainty. As a result, gold could still offer a safe solace. The precious metal traditionally increases in value in times of crisis.

After climbing to test the $1,000 level, gold recently had a slight sell-off. Now it's staging a comeback, creeping back toward the four-figure threshold. Many traders and investors are betting that the U.S. government's stimulus plan will ultimately spur an inflationary environment. As a result, people want to own tangible, hard investments. Gold is viewed as the optimal inflation hedge, hence the precious metal's recent price appreciation.

Investors can gain exposure to gold through individual gold stocks or exchange-traded funds. ETFs that track the commodity directly or through gold companies include the world's sixth-largest holder of gold, SPDR Gold Shares (NYSE:GLD), as well as PowerShares DB Gold and Market Vectors Gold Miners. The latter includes Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM) among its holdings.

Grab your shovel and start digging!
Alternately, you could invest in individual stocks that trade to some degree in tandem with the actual commodity. Search for undervalued gold stocks that show strong proven and probable reserves, such as Yamana Gold. Yamana has 19.4 million ounces in proven and probable gold reserves, sports low cash costs, and is targeting annual production of 2 million gold equivalent ounces by 2012.

To dig up strong gold companies, I turned to The Motley Fool's CAPS screening tool. My search criteria included:

  • Companies that operate in the metals and mining industry. Within the screen results, I specifically looked for gold companies.
  • Companies with CAPS ratings of four or five stars, the two highest ratings from the more than 135,000 investors in our CAPS community.
  • Companies with price-to-earnings ratios of 30 or less, because I didn't want any stocks that were too expensive. 

Here's what I found from running the screen:

Company

Market Cap (in millions)

Price-to-Earnings (TTM)

CAPS Rating (Out of 5)

BHP Billiton (NYSE:BHP)

$162,324

14.0

****

Golden Star Resources

$479.2

NM

****

Jaguar Mining (NYSE:JAG)

$610.9

NM

*****

Rubicon Minerals (NYSE:RBY)

$490.0

NM

*****

Vista Gold (NYSE:VGZ)

$75.5

NM

****

Data from Motley Fool CAPS, Yahoo! Finance, and Capital IQ, as of June 9. TTM = trailing 12 month. NM = not meaningful.

Remember that the screener's results should be only the first step in your due diligence. Be wary of valuations, since gold is one of the few corners of the market that currently seems to be working consistently. Decide your risk tolerance; while some gold companies are already producing and have built up proven reserves, others are in the early stages of mining for gold, and therefore riskier.

Also, keep in mind that commodities are volatile and move quickly. Gold stocks, which have a tendency to move in tandem with the commodity, could experience upside and downside with moves in the actual commodity, although their swings probably won't be as volatile. Though there will be fluctuation in gold, I believe that our lingering economic malaise throughout 2009 will keep the commodity largely stable and headed upward.

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Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy.