As a FTSE 100 Foolish investor, I don’t pay too much attention to share price movements over a short period of time. Even so, I can’t fail to be impressed by the performance of one particular company in the Footsie this year.
Top of the FTSE 100
Silver and gold miner Fresnillo (LSE: FRES) is the best performing stock in the FTSE 100 in 2020 to date. Based on yesterday’s closing price, it’s up 80% since January. If I’d invested £5,000 at the beginning of January, my stake would now be worth a superb £9,000 (ignoring costs). For comparison, the index is still down 14% over the same period!
This result demonstrates just how much money I can potentially make in the market by stock-picking rather than tracking an index like the FTSE 100. It also shows just how safe precious metals are perceived to be in times of trouble. Tellingly, gold rose above $2,000 for the first time ever in August. Silver hit a seven-year high one month earlier.
As the world’s largest producer of silver and the second biggest gold miner in Mexico, the economic havoc caused by the coronavirus has been a clear boon for Fresnillo. Even so, the FTSE 100 member’s gains pale in comparison to those achieved by the one-time small-cap miner Greatland Gold (LSE: GGP).
GGP’s share price is up a stonking 1,700% since the beginning of 2020. I don’t think it’s an exaggeration to say that it’s likely brought forward the retirement plans of many early holders.
What’s particularly noteworthy is that Greatland’s valuation has continued rising throughout the year. That’s despite the gold price losing some of its shine in the last six months.
Much of this appears to be down to further excellent drilling data from its world-class Havieron gold-copper deposit in Western Australia. This has led the £1.3bn cap to sign new agreements with venture partner Newcrest with a view to expanding exploration activities. The appointment of new CEO Shaun Day has also been well-received by the market.
More to come?
Naturally, it’s hard to say what will happen to Fresnillo, Greatland Gold, and related commodity-focused stocks in 2021. A successful global vaccination programme could herald a return to normality. In such a scenario, investors may rotate away from precious metals and back into beaten-down value plays.
Then again, it’s possible that markets could get back to their choppy ways in the event of distribution setbacks. We can’t rule out a third coronavirus wave either. Both of these would likely cause the prices of gold and silver to lurch back up. The latter could also benefit from a return of manufacturing, refining, and processing activity. Electricals, medicine, and consumer product use silver, so it’s much more useful than gold.
One other potential catalyst is the return of inflation. This is a particular issue if Joe Biden approves another stimulus package in the US. Historically, gold has a particularly good record of maintaining its value when governments are forced to increase the money supply.
If I’ve learned anything from the performance of the FTSE 100 member and Greatland this year, it’s that it can be far riskier to sit on the sidelines in cash.
As we say at the Fool UK, the best way to grow wealth remains via the stock market.
Whatever 2021 brings, my strategy is still to keep buying shares!
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.