Although gold prices were recently sitting at five-year lows, there are some bigger picture supply fundamentals to the gold story that may soon begin to play an important role, forecasts Luke Burgess in Energy & Capital.

Most important might be a sharp cutback in the amount of gold exploration. The drop in prices over the past five years has gutted gold exploration spending.

Back in May, the USGS reported that budgets around the world for gold exploration had fallen by 31% in 2014 over the previous year. And that follows another 31% drop in gold exploration budgets in 2013.

A decrease in exploratory activities today could result in a shortage of mine-ready projects in the future, leading to a shortage in gold supplies.

Meanwhile, the demand is still relatively high. Annual demand has exceeded 4,000 tonnes since 2011.

And recently, the demand for gold has really been heating up. The World Gold Council just reported that the demand for gold bars and coins jumped 207% during the third quarter.

A shortage of new mine-ready projects, coupled with sustained demand, could translate into hefty profits for prepared investors, which is why the time to act is now.

Physical gold is fine to own. But to really leverage rising gold prices, we want to be into equities right now.

Goldcorp (GG) is one of the world's largest gold mining companies. It produced 2.9 million ounces of gold in 2014 with projects in politically stable, low-risk jurisdictions in the Americas.

This year, Goldcorp expects to increase gold production to 3.3 to 3.6 million ounces.

Its production costs were a bit high at $950 per ounce in 2014. But Goldcorp expects to lower production costs to $850-$900 per ounce for FY 2015.

The company will also decrease capital spending this year and has a low debt-to-equity ratio relative to most other major gold mining companies.

As far as in-ground resources, Goldcorp owns plenty. The company's proven and probable reserves total nearly 50 million ounces, plus it has another 60 million ounces of measured, indicated, and inferred gold resources.

I expect increased production and lower costs to boost the company's valuation over the next several months. Of the gold mining majors, Goldcorp looks to have best upside to me right now.

Royal Gold (RGLD) is not a mining company. The company's cash flow comes from gold and other metals royalties and streams.

As a pure royalty company, Royal Gold assumes less risk. Projects with high risk can be managed out of the portfolio.

Royal's portfolio includes interests on 197 properties on six continents, including interests on 39 producing mines and 23 development-stage projects.

The projects are mainly gold interests but also include silver, copper, lead, zinc, and other mineral assets as well.

The stock took a hit when Barclays lowered RGLD's price objective. However, I think it's well oversold and expect to see this stock move back above $50 in the short-term.

Subscribe to Energy & Capital here.

More from MoneyShow.com:

Marketscope's Scoop on Steel & Gold

Franco-Nevada: Our Top Gold Investment

Canadian Gold Gains