Editor's note: Catch the Latest Happenings with Kitco Video News!

(Kitco News) - Gold prices have risen since mid-May, but shares of mining companies have climbed even more, with the gold-equity market acting as if it wants to reverse the trend of underperformance by gold shares over the last 1 ½ years.

Previously, gold-mining shares lagged due to factors such as rising mining costs and resource nationalism, in which governments in some countries wanted a bigger cut out of profitable mining operations. There was also political uncertainty in some regions, with investors worried they might not benefit from higher metals prices if they bought stock in a company that had a mine shut down by civil unrest. A decline in gold prices from peaks in September and late winter dented enthusiasm for gold stocks. Also, some investors preferred to hold the metal itself, or an exchange-traded fund, during periods of risk aversion.

But over the last month or so, anyway, mining shares are reclaiming the upper hand. Money managers and analysts expressed cautious optimism this will continue.

Around 1:30 p.m. EDT, spot gold was trading at $1,622.30 an ounce, which reflected a gain of 6.2% from the low for the year listed by one price vendor as $1,527.24 on May 16.

Meanwhile, the Philadelphia Gold and Silver Index (XAU) was up 17.5% from the May 16 low to 167.29 and the AMEX Gold Bugs Index (HUI) climbed 20.1% to 454.5975.

The world’s largest gold-mining company, Barrick Gold Corp. (ABX), was up 15.4% since the May 16 low to $40.17. And No. 2 producer Newmont Mining Corp. (NEM) was up 16.5% to $50.38.

“What we don’t know if this (outperformance against gold) is the beginning of a new trend or some kind of reversion to the mean,” said Jeff Clark, senior precious-metals analyst with Casey Research.

But, he continued, “I think it’s more than that. It’s just a hunch.”

Money manager Adrian Day doubts the pace of the rise in gold stocks will continue. Nevertheless, “we have probably seen the turn from gold-stock underperformance,” said the president and chief executive officer of Adrian Day Asset Management. And, “provided gold moves up and the stock market does not collapse, I think gold stocks are likely to outperform in the next phase--few months or even years.”

This could be the start of a shift in how investors view mining companies due to the price of gold itself, Clark said. He looks for gold to post further gains. When gold rises, mining shares historically have climbed even more.

“What we’ve experienced in the recent past is more the exception rather than the rule,” he said of the last 18 months. “I do think that gold becomes more of a safe haven, more of a currency alternative, more of a flight to safety due to the sovereign-debt issues, and more of a store of value because of the next money-printing scheme we are quite sure will be announced.”

Gold shares normally outperform the metal itself because of the leverage. If, say, gold prices rise 10%, the earnings of a mining company tend to climb more. Further, as gold prices rise, mining company’s underground assets become more valuable.

Day commented that gold shares in particular could benefit if general market sentiment shifts from concerns about the eurozone debt crisis—meaning the need for liquidity among investors—to the policy response such as monetary stimulus. Then participants may shift from “the defensive mode, bullion, towards the more speculative mode, stocks.”

Investors might also be encouraged by recent comments from some mining companies hinting that they may rethink how projects are built – perhaps starting them slower and staging start-ups, said Dan Denbow, portfolio manager with USAA Precious Metals and Minerals Fund (USAGX). Rather than huge capital expenditures to open mines as soon as possible, companies may let their cash flow pay for the next expansion of an operation.

“It’s showing they are being a little bit smarter and starting to be capital allocators rather than ‘build it and they will come’ managers,’” Denbow said.

Mining companies have also been putting an emphasis on returning capital to shareholders, typically done through programs such as dividends or stock buybacks.

“Dividends continue to go up. Yamana just raised their dividend yesterday,” Clark said. Yamana Gold Inc. (TSX:YRI, NYSE:AUY, LSE:YAU) announced a four-cent increase in its dividend to 26 cents a share in the third quarter, an 18% increase from the second quarter and 117% jump from a year ago.

Analysts and fund managers said gold stocks have bounced from low valuations.

“Gold stocks’ valuations had become ridiculously cheap, undervalued relative to their own historical valuations--cheaper on a fundamental basis than the broad market (S&P) and particularly, the cheapest they had been relative to bullion for 20 years,” Day said. “So it is not surprising that they are beginning to play catch-up.”

Denbow said investors especially are likely to return if they are encouraged by new approaches from mining chief executives. Clark said the mining shares likely to fare best are those that have low cost and low political risk.

Mining companies should benefit from lower energy prices, since this means lower operating expenses, Day and Denbow said. July crude oil this month fell as far as $81.07 per barrel on the New York Mercantile Exchange, down 27% from the peak of $111.49 on March 1.

“Gold miners are beginning to get religion in terms of fiscal discipline,” Day said. “Before the advent of the ETFs, they were the only game in town for most investors, so they could abuse investors with lousy capital allocation, overpaying for acquisitions that had no synergies, issuing dilutive equity, overpaying themselves etc. Now with the ETF, there is competition, and miners are finally getting the message that they have to improve their game if they expect investors to be long-term holders.”

However, Day added, he would prefer to buy the major mining stocks—as well as selected junior and exploration companies--after a correction.

The stronger U.S. dollar will also help profits of gold producers, Denbow explained. Companies are paid in dollar terms, but in turn pay their expenses in local currencies.

“The weaker dollar has been a headwind the last few years. In certain countries, we’re seeing that reverse now. That should also be a bit of a tailwind in terms of operating performance for companies,” Denbow said.