Gold is still the hot trade. While it's not that hard to remember when gold was an afterthought, squeezed between a quick summary of bonds and commodities during financial programming, it is now a leading investment class. Whether an investor's interest in gold is fueled by fears of inflation, economic and political turbulence, technicals, or even just a "greater fool" theory, the reality is that it has been a winning trade.

By now any investor with even a passing interest in gold knows a little something about the myriad of investment choices. People can choose to own actual bullion or numismatic gold, resource mutual funds, specialized ETFs like SPDR Gold Shares (NYSE:GLD), or mining stocks - and those are just the most popular options. (For more, see Is There A Right Way To Invest In Gold?)

Given that mining companies are the only entry on the list that can actually grow from internal strategic decisions, they are worth a serious look. This time, it is time to consider some of the smaller miners. Small miners can offer substantially more bang for the buck than larger miners like AngloGold Ashanti (NYSE:AU) and Kinross (NYSE:KGC) or highly diversified mining giants like Rio Tinto (NYSE:RIO).

Tutorial: Commodity Investing 101

A Quick View From Above
What is interesting about mining companies is that they don't necessarily track gold prices, and that is particularly true for smaller miners. For small miners, performance is often significantly influenced by the company's efforts to bring mines into operation and increase gold production. Investors should also note that many (if not most) analysts expect gold prices to peak in the next year or two and then decline. Those analysts could be wrong, but the possibility is worth considering all the same. (For more, see Does It Still Pay To Invest In Gold?)

Minefinders (AMEX:MFN)
Minefinders is perhaps the riskiest name on this list, as the company has only one producing asset at present - the Dolores mine in Mexico. Dolores has very attractive production costs right now and good expansion potential; the company is due any day now to provide an updated reserve number for this property. Minefinders also considered its options with the La Bolsa asset and putting this into production could allow for a sizable jump in production within three years.

Having only one operating asset makes Minefinders a very risky investment idea, and the company has had some issues in the recent past (including a damaged leach pad). Still, the stock looks interesting based on the old reserve numbers. Moving forward with La Bolsa could make this a really appealing idea for aggressive risk-seeking investors.

New Gold (AMEX:NGD)
New Gold may be small, but it is not afraid to operate a global business, as the company has assets in the U.S., Mexico, Canada and Chile (where it holds a minority stake in the El Morro project). New Gold is targeting a production level of 1 million ounces of gold at below-industry-average cash costs within five years - a level of performance that would more than triple its 2010 production level.

New Gold recently acquired Richfield Ventures in a friendly all-stock deal, paying about $280 per ounce for 1.8 million ounces of indicated gold reserves ("indicated" is a term used by Canadian companies that is roughly equivalent to proven and probable). Richfield's Blackwater project is geographically close to New Gold's New Afton project and should offer some cost synergies when it starts production in five to six years. Although it is not the cheapest junior miner, New Gold does trade at a discount to its peers despite an appealing asset base and good prospects for cost-effective production growth. (For more, see South America: Ground Zero For Gold Mining.)

Northgate Minerals (AMEX:NXG)
In some respects Northgate may remind investors of the large and very successful independent E&P company Apache (NYSE:APA). Like Apache, New Gold focuses on acquiring declining assets that have been underutilized. Northgate has had quite a bit of success with what are supposed to be low-grade and short-lived mining assets. That said, the company has problems common to many who operate these kinds of assets - production costs are higher than average (the Stawell mine had production costs of C$969 per ounce in 2010) and it can be a struggle to increase production.

Management at Northgate is optimistic about its growth potential, targeting 50% growth between 2011 and 2013 (from expanded production at old mines and new projects), but is realistic about its higher cost base (targeting costs of $805 to $845 per ounce in 2011).

With such high production costs, Northgate is clearly heavily dependent on high ongoing gold prices; production at mines like Stawell just does not make economic sense otherwise. With that risk and very high leverage to high gold prices, Northgate is one of the cheapest junior miners around. For investors who really want to make a play on sustained high gold prices, Northgate is a name to consider. (For more, see What To Do About Gold Now.)

The Bottom Line
Investors should never forget that investments in junior miners carry even greater risks than the already risky idea of investing in commodity producers. Junior miners often depend on just a few operating assets, so one accident or double-crossing foreign government can smash their plans and destroy the value of the investment. That said, junior miners often offer the best chance of real organic production growth and very high leverage to high metal prices. While gold ETFs may satisfy many investors' desire for diversification, risk-tolerant investors may want to try leveraging their exposure even further and taking a flyer on a junior miner. (For more, see Strike Gold With Junior Mining.)

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