Investor Education: Gold and Silver Stock Leverage with Expert Don Hansen

Private investor Don Hansen has honed his resource sector investment approach for more than 20 years.

Speaking to the Investing News Network, he shared his recent research on how gold and silver price moves affect companies operating in the space; he also explained how he's using the data he's collected to hone his portfolio.

Hansen studied the period between February 23 and April 12 of this year, during which the gold price went up 10.4 percent and the silver price rose 19.4 percent. He then looked at how gold and silver stocks performed during that time.

"When I looked at the various companies, I could see that the best companies were between 25 and 30 percent up," he said. Hansen also considered the VanEck Gold Miners ETF (ARCA:GDX), which saw a 28 percent increase.

"What we're learning here then is that the leverage to the gold price is between 2.5 and 3. And for the better companies it's over 3, and for the not-so-better (companies) it's less," he said. However, Hansen noted that this applies largely to producers — explorers and developers react less to gold and silver price moves, instead seeing more impact from drill results and other milestones.

In terms of how he's using this information, Hansen said he's been shifting away from explorers and developers.

"The other thing that I've been doing recently is to shift more into silver," he said, noting that silver outperforms gold and moves quickly once it gets going. If a bull market has begun, as he believes it has, silver could be poised to take off.

"But I'm not going whole hog," he said, emphasizing that it's important to find balance when investing. "I think the idea is for me about half and half gold mining and silver mining, because if we have a serious recession and the economy tanks, and it tanks badly, silver will do badly because it's both an industrial metal and a monetary metal ... gold will do better or less bad than silver if we have that downturn. Then if we get back into inflationary mode, silver will do better than gold."

Watch the interview above for more of Hansen's thoughts on how gold and silver price moves affect stocks. You can also click the the timestamps below to view specific parts of the interview:

• 0:00 — Intro
• 0:33 — Terms Don will use in the interview
• 2:41 — Gold stocks vs. the S&P 500
• 8:09 — Gold price vs. gold miners
• 11:00 — How inflation impacts gold stocks
• 17:33 — Gold price vs. gold juniors
• 20:40 — Key due diligence questions to ask
• 27:40 — What Don is doing with his money
• 31:29 — Final investing advice from Don
• 33:25 — Outro

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.