At some point in every gold rally, the market flips a switch and gold mining stocks start to outperform gold itself. I think we're at that inflection point now.

Analysts on Wall Street are calling for gold to hit $1,500 an ounce by December 2011. That would be roughly 18% above the record $1,266.50 reached on June 21.  

But I think you can do even better in gold stocks during that time, because the operating leverage of gold miners gives you more upside than the metal does. At this point, I'd be looking at the majors such as Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM), because they have a heavy weighting in the gold ETFs that are a big favorite of investors right now. My pick of the three would be Newmont Mining. (I already own shares of Goldcorp in Jubak's Picks.) 

You might even get shares of Newmont on a slight dip in the next few days as investors decide that they're more enthusiastic about the U.S. economy than they were and switch some funds to growth vehicles.  

But in the medium term, I'd say investors from hedge funds to individuals will continue to act as if they can't get enough bullion. Holdings of gold through bullion-backed ETFs are at 2,075 metric tons. That's just 0.1% below the all-time high. 

But the trends say that demand is headed higher. Normally, when gold prices get this high, it kills demand for gold from the jewelry markets. Not this time -- so far. 

According to the World Gold Council, demand for gold in the second quarter fell by just 5% despite higher gold prices. Demand from India, the biggest jewelry gold market in the world, was down just 2% from the second quarter of 2009. So, it doesn't look as if falling jewelry demand is going to slam on the brakes. 

Investment demand is still climbing. Despite high prices, investors have added to their gold positions through ETFs for the last three weeks in a row. Traders and investors see gold as a refuge in the current uncertainty, and with yields on bonds and other income investments at historic lows, the fact that gold doesn't pay a yield doesn't seem especially important. 

It certainly doesn't hurt investment demand that in 2010 gold has outperformed just about everything else, with a 13% gain since January. That's better than the 8.4% return from Treasuries, the 8% drop in equities as measured by the MSCI World Index, and the 10% decline in the 24 commodities included in the S&P GSCI Total Return Index. 

And central banks, which have been net sellers over the last decade, are now buyers in the case of China, Russia, and the Gulf countries. 

The rising price of gold gets amplified by the operating leverage at gold mining companies. A high proportion of the cost of mining and refining an ounce of gold is fixed. At, say, a gold price of $600 an ounce, a gold miner might just break even. But at $1,200 an ounce, $600 an ounce would fall to the bottom line. Same production in ounces, but twice as much profit.   

So, while Wall Street analysts are predicting that gold the metal will climb by 18% by December 2011, they're projecting that earnings at Newmont Mining, the largest U.S. gold producer, will climb 47% this year, according to estimates compiled by Bloomberg. 

You do get more than just gold with a buy of Newmont, though. The company has proven and probable reserves of 92 million ounces of gold and reserves of 9.1 billion pounds of copper. Copper recently has been the commodity most closely linked to the course of the global economy, so an improvement in global growth (or even just global growth prospects) will give Newmont an earnings boost. 

The stock has decisively moved above its 50-day moving average. Next challenge? The 52-week high at $63.38. It traded near $61 Friday afternoon. 

As of Sept. 3, I'm adding this stock to Jubak's Picks with a target price of $71 a share by May 2011. 

At the time of this writing, Jim Jubak didn't own shares of any company mentioned in this post in his personal portfolio.