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

There are few places to park your cash for a decent return these days. Even Treasuries are yielding close to 0%. However, as the U.S. markets reach new lows, gold could still offer some solace. The precious metal traditionally increases in value in times of crisis.

After selling off at the latter end of 2008, gold has staged a comeback, creeping back to the $1,000 an ounce level. Traders and investors are betting that the government's stimulus plan will ultimately spur an inflationary environment. Gold is viewed as the optimal inflation hedge, hence the precious metal's recent price appreciation.

In addition, the rising energy costs that peaked in 2008, cutting into gold producers' margins, are no longer an issue. Therefore, gold companies could see fatter margins in 2009. What's more, companies may be erring on the side of conservative guidance, and analysts may not have factored in this positive upside. As a result, gold companies could offer earnings surprises to the upside in coming quarters.

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 PowerShares Global Gold & Precious Metals, PowerShares DB Gold (NYSE:DGP), and Market Vectors Gold Miners, which includes Kinross Gold Corp. (NYSE:KGC) 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 or Freeport-McMoRan Copper & Gold. Yamana has 17.9 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. Freeport-McMoRan has a shiny 41 million ounces of proven and probable gold reserves.

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

  • 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 125,000 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)

P/E
(trailing)

CAPS Star Rating
(5 stars max.)

Gammon Gold (NYSE:GRS)

$905

N/M

****

Golden Star Resources (NYSE:GSS)

$370

N/M

*****

IAMGold (NYSE:IAG)

$2,300

24.1

****

Northern Dynasty Minerals (NYSE:NAK)

$418

N/M

****

Rio Tinto (NYSE:RTP)

$33,670

9.2

****

Data from Motley Fool CAPS, Yahoo! Finance, Capital IQ. N/M = 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. 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 congruent 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 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.