The Fresnillo share price has jumped by ~380% this year, making it the best-performing company in the FTSE 100 Index. It has done better than the Footsie and other companies in the index. For example, Airtel Africa, the second-best performer, has jumped by 170% this year.
Fresnillo share price chart | Source: TradingView
Soaring gold and silver boosted the Fresnillo share price
The main reason why the Fresnillo share price surged this year is that it is involved in gold and silver prices.
As a result, it benefited as these precious metals soared to their record highs. Silver price jumped by 120%, while gold was up by 65% in their best years in a long time.
Gold, silver, and other precious metals well because of the rising demand from around the world.
Central banks from countries like China and Russia continued buying gold this year as part of their diversification strategy away from the US dollar.
The soaring demand was also from private companies. For example, Tether, the company behind the biggest stablecoin, bought over 116 metric tons of gold, which are currently worth about $15 billion.
Tether bought this gold as part of its strategy to back USDT and Tether Gold, which has a market capitalization of over $1.4 billion. Unlike other stablecoins like USDC, RLUSD, and PYUSD, USDT is backed by a portfolio of assets like gold, Bitcoin, and short-term government bonds
Meanwhile, data shows that gold and silver ETF inflows have done well this year. The SPDR Gold Trust (GLD) has had over $20 billion in inflows, while the iShares Silver Trust (SLV) ETF has brought in over $2.6 billion in inflows this year.
Silver price has done better than gold because of the close correlation between the two assets. In most cases, the silver price normally does better than gold when the latter is rising, and then lags when it is falling.
The two metals have done well because of the actions of the Federal Reserve and other central banks. The Fed has slashed interest rates three times, while other top ones like the European Central Bank (ECB), the Swiss National Bank (SNB), and Bank of England have lowered rates in this period.
Fresnillo’s business has benefited from gold and silver prices gains
The Fresnillo stock price has soared as the company has benefited from the ongoing performance of these precious metals. That’s because it is one of the biggest silver miners in the world.
The most recent results showed that the company’s revenue rose by 27% in the first half of the fiscal year. This growth was because of the elevated prices and gold production, which was offset by lower silver supply.
Most importantly, the surge in revenue happened as the company was reducing its costs. The adjusted production cost dropped by 20% to $673 million, helped by the Mexican peso devaluation.
Fresnillo’s profit jumped by 297% to $467 million, while the free cash flow rose to $1.02 billion. As a result, the company boosted its balance sheet, with amount of cash in its balance sheet hitting $1.8 billion.
Will the Fresnillo stock price surge continue?
The question among investors is whether the Fresnillo stock price has more upside to go in the coming year.
This performance will depend on the performance of gold and silver prices during the year. Some analysts believe that these two metals have more upside as the Fed has committed to cut interest rates and implementing a quantitative easing policy.
As a result, some analysts see gold soaring to as high as $5000 and silver hitting the key resistance level at $100. Such a move will help to boost its stock performance.
However, it is worth noting that precious metals are usually cyclical and a surge in one year is accompanied by a drop in the following year.
Therefore, there is a risk that the Fresnillo share price will pull back in the coming weeks or months as investors start to book profits.
READ MORE: Top 5 reasons gold price is on a relentless bull run
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