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John Embry recently compared gold mining stocks to Tech Bubble 1.0, noting that gold stocks would see a meteoric rise, similar to what internet stocks saw in 1999 and 2000. As my recent post on gold mining stocks suggests, I agree.

However, not all mining stocks are equal. And while I recommend GDX and GDXJ as ways to capture the sector-wide opportunity, finding the companies that can outperform and can generate significantly higher returns.

As a point of reference, see the chart to the right (click to enlarge), from the 1999-2000 dot com bubble: the candlesticks show the share price of Amazon.com (NASDAQ:AMZN), one of the few firms that has established itself as a “blue chip” internet stock; meanwhile, the light blue line you see near the bottom represents the Nasdaq Composite Index.

Even though Nasdaq nearly doubled over the 1997-2000 period, its returns pale in comparison to Amazon.

So, the question is: What will be the Amazon of the coming eruption in gold mining stocks?

I’m not deeply invested in this area, simply because I prefer to focus on optimizing the run up in the bullion metals market. I believe those markets are more conducive to my skill set.

However, the one single stock play I do have in this area is Tanzanian Royalty Exploration (NYSEMKT:TRX).

My rationale is as follows:

  1. Founders and management is everything. Tanzanian Royalty Exploration is led by Jim Sinclair, a trader whose track record in the gold market has been immensely successful. Jim also blogs, which I find important; I feel as though it lets me get to know him better, things like his appreciation for pets and his spiritual views, as well as more market relevant matters like his belief in issuing dividends to discourage short sellers. His blog has helped me to feel more confident investing in Sinclair than in operators of other firms.

  2. TRX is still small, outside the scope of ETFs like GDX and GDXJ, and still trading at a very low price, just under $7. A limited downside and relative obscurity are necessary for a big move up, in my opinion.

To re-iterate, I don't view single stock selection as my forte. Rather, I felt comfortable enough with stepping outside of my fondness for commodities and ETFs with this as my preferred single stock play for the coming boom in gold mining stocks.

Source: Gold Mining Boom: Tanzanian Royalty Has Limited Downside, Relative Obscurity