Gold stocks have outperformed the gold price itself in 2009, which is a major change of pace from recent years. But according to BMO Capital Markets analysts David Haughton and Andrew Breichmanas, the senior and intermediate companies still look relatively cheap compared to past bull markets for gold.

In a note to clients, they wrote that the stocks are pricing in gold prices that are about 15% below the current spot price (which recently topped US$950.00 an ounce).

Meanwhile, the miners themselves are likely to post higher earnings as they benefit from a gold price approaching record levels. They are also getting help from the fact that currencies in most gold-producing countries are down against the U.S. dollar, and oil prices that are much lower than they were a year ago. In both cases, that means lower costs.

Mr. Haughton and Mr. Breichmanas also pointed out that the balance sheets of gold companies are rapidly improving. They calculated that their gold stock universe carried US$9-billion of debt in 2008, expected to fall to US$5-billion this year and just US$1-billion in 2010.

Put together, they think the outlook for gold stocks remains very strong. They have hiked the target prices on most of the stocks they cover based on multiple expansion in the sector, and rate the whole sector "outperform."