(FORTUNE Magazine) – In the old days, when fear of inflation haunted the market, the soothsayers said, Buy gold. Try telling that to leery investors today. The price of gold seems to be on an endless spiral down. Gold funds lost an average 20% over the past 12 months, says Morningstar, and gold companies are anything but glamorous. As measured by market value, in fact, all the publicly traded gold producers in the world are worth less than Coca-Cola.

Despite its terrible investment performance, though, gold has kept a few friends. Among them: Jean-Marie Eveillard, who manages SoGen's $50 million gold fund. Eveillard launched the fund in 1993, believing that the price of gold, after falling steadily from $800 an ounce in the early eighties to around $370, was ripe for a rebound. Today the price languishes at $345. Eveillard says that if there's no sustained increase by the end of 1998, he'll apologize to shareholders in writing and suggest that they liquidate their stakes.

Where is he prospecting now? Not here in the U.S. Eveillard's associate Charles De Vaulx points to an analysis by the Canadian firm Midland Walwyn that shows that the stocks of the 14 largest North American gold producers cost an average of 23% more than the value of their precious-metal reserves. Why the premium? The market is infatuated with the idea of "growth gold"--companies that are increasing reserves each year through new exploration. Since 1983, minable reserves in North America have increased 15% annually, on average. But reserves grew only 12% last year, and the team at SoGen believes the glory days are coming to an end.

The opportunities look better, they say, in South Africa, where three kinds of bad news--no reserve growth, high expenses, and falling gold prices--have been decimating share prices: Over the past year, the stocks of South African gold producers plunged by more than one-third. Now these stocks are priced right at the value of their gold reserves, based on Midland Walwyn's analysis. While the stocks would surely suffer if gold prices fall, the potential rewards are higher than for U.S. companies if prices climb.

--Bethany McLean