Should you buy gold stocks in June?

What:  Over the weekend the gold price dropped nearly 1% to trade at US$1,246 per ounce. The precious metal has now experienced five straight losing sessions; according to Reuters this marks the longest losing stretch since November.

So what: It has been a series of mixed fortunes for gold investors over the past six months. While the gold price has virtually been flat in that period the performance of gold stocks on balance has been very good but also very company specific.

Now what: While the returns from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the past six months, like the gold price, have been largely flat – recording a gain of just 4% – both the ASX and US indices are currently trading near their respective 52-week highs and enjoying a number of positive economic indicators and benign inflation.

This situation doesn’t appear bullish for the gold price and may suggest there is limited upside from the likes of Newcrest Mining Limited (ASX: NCM), Northern Star Resources Ltd (ASX: NST) and Saracen Mineral Holdings Limited (ASX: SAR) which have gained 25.5%, 64% and 71% respectively in the past six months.

Investors who carefully select gold stocks that have experienced company specific issues and perhaps been oversold – such as Beadell Resources Ltd (ASX: BDR) – may be better positioned to capture future upside.

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Without a clear view on how far the gold price could fall it may be best to take a wait-and-see approach towards this sector. This is always a key problem when investing in commodity stocks but its not one faced by this small but ultra promising ASX company... and you can get the name and code FREE right now. Click here for your free copy of "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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