Some guidelines from Casey Research:

Why Hasn’t the Top-Down Approach Been Working?

You might say: because the price of gold hasn’t gone up! That's true, but there’s more to the story.

Until quite recently, gold has continued to rise, though not at the same clip we enjoyed after 2008. The problem is that miners' operating costs rose faster than the price of gold. Investors didn't expect that.

Nor did they factor in other cost increases. Sure, the value of a deposit rises every day the gold price rises. But did oil prices jump at the same time, making trucking the goods out more expensive? Did your laborers start demanding high wages? Did energy costs increase? Did the federal government demand a bigger slice of the pie?

Top-down investors can stop trying to figure out why they haven’t been correct over the last several years. Theywere correct on the gold price—but they ignored underlying cost factors.

This is where the Fundamental Approach shines. All of your investments should fulfill a few key checkpoints:

1. Look for companies where management owns a large percentage of the stock. A vested interest at a higher share price is even better.

1. Look for a tight capital structure. A bloated outstanding share count is a red flag. As is a history of management carelessly diluting away shareholder interest by issuing new stock.

1. Look for a thrifty management team. A good company should spend their capital on projects, not swanky new offices.

1. The company's mine should remain profitable even if gold drops to $1,000 per ounce. It could happen.

1. Look for companies with enough cash to finance their current drill program, expansion plans, feasibility study, or construction phase. This year in particular, companies are having a very difficult time finding financing. Those who have adequate cash are diamonds in the rough.

1. Know which countries support mining. A tier-one asset under the control of a wildly corrupt government isn't really a tier-one asset. You don't want to get caught in the middle of a government dangling final permits above managements’ heads.

1. Know the geological potential of the exploration area. A four-million-ounce gold deposit is swell, but what if your company discovers not just one gold mine, but an entire new gold district? How will you factor in that upside?