Investors who are digging for value may want to consider mining for several gold stocks such as Randgold Resources Limited (GOLD), Gold Fields Ltd. (GFI) and AngloGold Ashanti Ltd. (AU), all of which made Goldman Sachs' top picks. 

On Friday, although gold prices declined to a two-week low thanks in part to inflation data, which showed faster-than-expected growth in the U.S. consumer prices last month, Goldman Sachs proclaimed gold stocks were in a "sweet spot." The precious metal ended the week down 1.5%, netting its first weekly loss in three weeks.

"We accept gold stocks have rallied significantly, (more than) 100% year to date. However we believe there is still a significant leg up for these equities," said Goldman analysts Eugene King and Abhinandan Agarwal in a note to investors Friday.  (See also: 8 Reasons To Own Gold.)

The expectation that the Fed may raise interest rates, however, sent spot gold prices to its lowest level since Sept. 1 to $1,306.26 per ounce, while falling 0.22% to $1,310.86. The U.S. gold futures for December delivery settled down 0.6% to $1,310.20. Goldman, which cited higher free cash flow for several gold stocks, believes that the recent decline in gold stocks is overdone.

The firm also noted that if the Federal Reserve raises interest rates, though it may cause a dip in gold prices, the pullback will likely be short-lived. "Gold companies have endured the pain of repairing their balance sheets, selling/closing loss making mines and taking extra costs/capex out of the system," noted Goldman. "At spot gold prices, these companies should now generate greater than 6% average free cash flow yields to 2020."

With regard to the low dividend yields paid by gold stocks, the firm argued that gold companies will be under pressure to increase their cash payouts, because they are now in a position to do so thanks to better cash flow and strengthened balance sheets. (See also: Why Is Gold a Counter Cyclical Asset?)