I recently wrote about Fresnillo (LSE:FRES) and talked through how the strong gains over the past year were being driven in a large part by the move in gold and silver.
Precious metal prices have rocketed in 2025 for many reasons, with a miner like Fresnillo reaping the benefits. However, the Fresnillo share price is down 22% since last Friday (17 October). Here’s what’s going on and why I don’t think investors should panic.
Volatility in precious metals
Over the course of this week, we’ve seen both gold and silver prices correct lower. For example, gold’s gone from almost $4,400 per oz on Monday to below $4,100 this morning. Analysts are pointing to signs that investors are booking profits on existing trades, meaning that some are choosing to sell the precious metal to realise the profit.
I see the move as healthy. No asset price, stock or commodity can simply go up and up in a straight line. It’s impossible. Instead, having a short-term move lower allows some euphoria to calm. It also provides a chance for new investors who were sitting on the sidelines to come in and buy the dip.
Fundamentally, there’s no serious reason why precious metals are falling that suggests this is the beginning of a longer-term move.
How this impacts Fresnillo
Even with the move this week, Fresnillo stock’s still up 182% over the last year. The stock’s influenced by the movements in gold and silver. Fresnillo’s one of the world’s largest primary silver producers and also a significant gold producer, operating mainly in Mexico. So its income largely comes from selling the metals it extracts. Therefore, if silver or gold prices rise, every ounce Fresnillo sells becomes more valuable. This translates to higher revenue and profit margins.
The inverse is also true, so when the prices fall, Fresnillo stock also suffers. That’s why we’ve seen the stock crash over 20% in just a few days. Any investor who has been around for some time knows that volatility in commodity stocks is normal. It’s just something that has to be accepted.
Looking ahead
Fresnillo has high fixed costs (like equipment and labour) and relatively stable output levels. Therefore, their profit margins are very sensitive to changes in metal prices. Some will see this as a key risk going forward.
Yet from my perspective, I think the outlook for gold and silver is still positive. This short-term tree shake cold finish soon. When I look at the higher industrial demand for silver, along with central bank buying of gold, I think the prices could rally further. This is in line with what leading investment bank research teams think too.
As a result, I don’t think it’s game-over at all for Fresnillo stock. Investors who are comfortable with the risks might want to consider it.
