NEW YORK ( TheStreet ) -- As markets are slammed with volatility and fears of a double-dip recession persist, gold stocks are poised to prove themselves as a moderately safe place to stash cash. Gold stocks can, no doubt, be volatile, as they are subject to geopolitical issues and a constantly churning gold price. That said, many analysts believe the gold sector is undervalued and poised for a comeback.
Peru, for example, elected a nationalist president, Ollanta Humala, on June 15. Humala favors high mining taxes to return money to the Peruvians and there is speculation that he may go so far as to nationalize mines. Ayer believes that the president isn't going to come into office and change all the economic policies, especially because Peru has the highest growth rate of any nation in South America, according to his calculations. "What they have in place is working ... [they are] not going to break the mining stocks." Even if it doesn't happen, the threat of nationalization is enough to scare investors out of a gold stock and into a gold ETF. Mining gold is also expensive and risky. Companies could not find enough gold, it might take longer for the gold to be pulled out of the ground, production might be halted for myriad reasons and all of that costs money. The average total cost to produce an ounce of gold for the industry is currently between $750-$1,100, only made worse by high oil prices, which jack up input costs. Another less recognized factor weighing on the gold stocks that Leo Larkin, equity analyst at Standard & Poor's, points out is that over that the last 10 years gold companies had to issue huge amounts of shares in order to raise cash to build mines. This dilution is taking a while to shake out of the share price. "Between 2001 and 2010, Barrick has increased shares outstanding by 86%. That's overlooked when people try to come up as to why these stocks are lagging." Larkin has a strong buy rating on Barrick, however, believing that it is done issuing shares pointing to its recent acquisition of Equinox, which was paid for in cash. "You could say the risk/reward is more favorable now than before because the stocks haven't moved and we think they can provide this leverage." TD Newcrest is also bullish on gold stocks with its top picks being Goldcorp (GG - Get Report), Eldorado Gold (EGO - Get Report) and Iamgold (IAG - Get Report). "Gold equities, on the back of rising gold prices, have generated the best forward earnings growth since mid-2007 at 195%," TD Newcrest said in a recent research note, "yet the average forward P/E multiple has contracted 45%," meaning that the markets expect lower earnings growth.