Despite 12 consecutive years of rising gold prices, shareholders have lost faith in the gold-mining industry, which has seen soaring production costs and made money-losing acquisitions. Investors have instead flocked to exchange-traded funds, or ETFs, such as the SPDR Gold Trust, which are backed by bullion and track the price of the metal.

The FTSE gold index, which tracks 27 of the largest producers, has plunged 58 percent to yesterday since bullion hit a record on Sept. 6, 2011. Over the same period, the MSCI All Country World Index, which tracks 2,431 global stocks, climbed 22 percent.

“Gold companies have underperformed the gold price for more than the past 20 years, quite simply because they make as little money today for shareholders as they did at $300 an ounce,” Brenton Saunders, who helps manage about $600 million at Taurus Funds Management Pty., said from Sydney.

Starved of fresh capital, smaller mining companies that carry out exploration and development were already being squeezed before this week's price crash. There are too many companies in need of financing and there will be production stoppages as some of them cut expenses, said John Ing, CEO of Toronto-based brokerage Maison Placements Canada Inc.

Eoin Treacy's view Gold shares have lost their appeal as a leveraged play on gold for a number of reasons but their inability to keep costs under control has to be among the most important for investors who have seen ETFs keep pace with gold's advance.

The underperformance of their shares finally began to register with the boards of gold mining companies last year and a number of fresh initiatives were announced in an attempt to bolster confidence. Among these were a more transparent reporting of costs, higher dividends and in some cases a tying of dividends to gold prices. Unfortunately, the market seems to have concluded that this was too little too late and these measures failed to reignite investor interest. Rather the opposite in fact.

Following the decline in gold prices over the last week, and the even quicker deterioration in the shares of gold miners, deeply oversold conditions are now evident. To put this in perspective, in the last decade gold has posted a number of upward accelerations which saw prices become overextended relative to the 200-day MA by between 25% and 29%. At Tuesday's low gold prices had become almost 20% overextended relative to the 200-day MA on the downside.

Even if were to assume that the $1600 area is likely to become an area of resistance in future, potential for at least a partial unwinding of this oversold condition has increased. Based on this assumption, I thought it might be useful to highlight some gold shares where valuations have returned to attractive levels.

US and Canadian listed Barrick Gold Corp has an Estimated P/E of 4.66 and a dividend yield of 4.56%. The share accelerated lower over the last three weeks and is now almost 50% overextended relative to the trend mean as it tests the 2008 lows near $17.

US and South Africa listed Gold Fields has an Estimated P/E of 7.77 and a dividend yield of 4.4% and the share is currently 35% overextended relative to the 200-day MA. The company spun off some of its largest South African assets earlier this year in order to insulate the parent from labour unrest. Sibanye Gold is now South Africa's second largest gold miner, has a forward P/E of 2.06 and is expected to begin paying dividends at the end of this year.

Canadian listed Centerra Gold has an Estimated P/E of 2.57 and a dividend yield of 4.11%. The share is 56% overextended relative to the 200-day MA.

UK listed Highland Gold Mining does not pay a dividend and has an Estimated P/E of 3.92. The share has not fallen to the same extent as other gold miners and while it exhibits a medium-term downward bias, a sustained move below 80p would be required to check potential for a reversionary rally.

The problem with looking at attractive valuations following a deep pullback is that if earnings deteriorate the P/E will rise and/or the dividend will be cut and prices will remain relatively soft. Therefore if these valuations do indeed represent value, gold prices will need to at least stabilise and costs will have to be kept under control. If gold unwinds its oversold condition with a short covering rally, the reaction of gold shares should be positive.