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Gold is more expensive than ever before, but gold producers are looking cheaper and cheaper.

"We are now nearing an all-time low in equity valuations in the precious metal space," Canaccord Genuity analysts Wendell Zerb and Nicholas Campbell wrote in a research note.

"The senior/intermediate gold producers are trading at an average multiple of 0.85 times price to net asset value, and the junior producers are trading at 0.72 times. This is a lower average P/NAV level than the market collapse of late 2008."

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The reason: Investors are cagey about committing capital in uncertain times.

"The junior mining sector does best during times of stability, when profits are high; bellies are full and capital searches out excess return," the analysts pointed out. "There have certainly been country-specific political developments that have weighed on specific equities, and the macroeconomic environment is rife with issues that continue to shake investor confidence."

These issues are widespread and unlikely to be resolved in the short term, they said.

"However, as high gold and silver prices improve the margins of operating miners and balance sheets begin to grow, investors should begin to gravitate towards the juniors. Larger cap companies should begin to reinvest growing cash reserves into new production through M&A, and improved potential returns in the current commodity environment should begin to attract investors into the small-cap mining space."

What's an investor to do? Look for companies with strong, proven management teams, robust balance sheets to drill, explore, and advance projects, and high-quality projects that are likely to attract new capital -- and maybe even an acquisition bid from a larger producer, Mr. Zerb and Mr. Campbell say.

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