Few FTSE 100 stocks have delivered a ride quite like this one. After soaring to extraordinary highs, the share price has retreated heavily — prompting fresh questions over whether the investment case has fundamentally changed, or whether investors may be losing patience too early.
That debate now surrounds Fresnillo (LSE:FRES), a former market darling whose fortunes have become closely tied to one of the most volatile corners of global markets.
Sentiment has cooled
Since peaking at around $120, silver has retreated into the $70 range. On the surface, that kind of reversal looks like a textbook case of a rally running too far, too quickly.
But that is where the debate becomes more interesting.
Moves of this scale are not common in stable market conditions. Never in history has the price ever exceeded $50. That in itself could be telling.
Today, investors are once again weighing up whether this is another speculative cycle that has run its course. There are precedents — notably the early 1980s and the post-financial crisis period — when sharp rallies in silver were followed by long periods of consolidation.
The key question now is whether this time is different, or whether history is repeating itself once again.
So where do I sit?
Supply and demand
I come very much down on the side that the precious metals bull market is far from over.
The macroeconomic backdrop that supported the initial move higher remains broadly intact. US debt continues to rise, now exceeding $40trn, while interest costs are placing increasing pressure on public finances.
At the same time, the long-term purchasing power of the dollar continues to erode. Historically, that combination has been supportive for hard assets.
But silver is not just a monetary hedge.
Demand is also coming from industrial applications across electronics, data infrastructure, defence systems, electric vehicles, and renewable energy. In many of these uses, substitution is either difficult or comes at a cost in performance, which supports structural demand over time.
On the supply side, constraints remain significant. New mining capacity takes many years to develop, requiring long lead times, capital investment, and specialist expertise that is increasingly scarce. As a result, supply growth is slow to respond even when prices move higher.
What’s the verdict?
Of course, Fresnillo does not control silver prices, and mining remains inherently cyclical and operationally complex. Input costs, reserve replacement, and production execution can all materially impact profitability.
But what stands out from the FY25 results is how powerful the business becomes at current metal prices. Even at around $70 silver and $4,500 gold, Fresnillo is generating exceptional margins and strong cash flow.
That matters because it highlights the leverage embedded in the model. If today’s pricing environment proves more durable than many expect, the earnings power of the business could look very different over the next cycle compared with the last.
For investors with little or no exposure to precious metals, the key question is therefore not whether volatility will continue — it almost certainly will — but whether the current level of profitability is being fully recognised over the long term.
On that basis, Fresnillo is one to watch closely as the next phase of the cycle unfolds.
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Andrew Mackie owns shares in Fresnillo.
