This year has proved once again just how volatile FTSE 100 mining stocks can be. Fresnillo (LSE:FRES) has slumped 23% in the space of a fortnight, yet is still up more than 200% since the start of January.
The recent reversal is due to a sharp pullback in the price of both gold and silver. The former has dipped below $4,000 an ounce, while silver is now at $45 (down from $53 a couple of weeks ago).
With Fresnillo producing both precious metals, investors have been quick to hit the Sell button. But has this just opened the door for long-term investors to consider scooping up Fresnillo shares at a quick-sale discount?
Zooming out
In short, my opinion is yes. Nothing has fundamentally changed long term from a gold bull perspective.
Is the world moving towards less volatile geopolitics? Has inflation been permanently tamed? Have governments suddenly learned fiscal discipline? Will President Trump tone down his rhetoric? Sadly, the answer appears to be no to all these questions.
Granted, the US and China are said to be nearing a comprehensive trade deal, which is putting pressure on the gold price. An agreement is good for the global economy and might ease geopolitical tensions in the short term. Longer term though, I’m not convinced it changes much.
Fact is, central banks and institutional investors have been steadily loading up on gold to diversify away from the US dollar. The reasons for them doing this haven’t gone away.
As David Russell at bullion dealer GoldCore says (quoted by Reuters): “Gold’s performance in 2025 reflects more than the strength of a rally. It marks an acceptance of a new reality. The market is no longer responding to short-term shocks but to a deeper loss of confidence in policymakers, currencies, and the financial system itself.”
Zooming in
Turning to Fresnillo itself, the stock now carries a forward-looking dividend yield of 3.6%. So there’s a decent bit of income on offer.
Of course, if the selling of precious metals continues, the dividend could always be cut as the Mexican miner’s earnings take a hit.
However, longer term, I’m bullish due to the firm’s silver operations. As well as being used as an investment asset and in jewellery, silver is a critical industrial commodity. It’s used in solar panels, electric vehicles, electronics, and semiconductors. All are set to enjoy a rise in demand over the next decade and beyond.
Yet crucially, silver supply is structurally constrained. New projects take a long time to develop due to environmental hurdles and permitting delays. As such, Fresnillo hasn’t meaningfully increased production for years, despite being the world’s largest primary silver producer.
Again, when I look at the supply-demand dynamics for silver, it’s hard not to be bullish over the long run.
Traders are out (for now)
In the past week, what seems to have happened is that many retail investors and traders have been selling. That might be to book profits or prevent any further potential losses.
This is entirely normal after such a strong gold and silver run. Consequently, the share price is now more in line with analysts’ target of £22 (slightly above the current £20.74).
For long-term investors with a stomach for volatility, I think this dip presents an opportunity to consider Fresnillo shares.
