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The Fresnillo (LSE: FRES) share price continues to defy gravity. Indeed, it has become my most talked about stock here at The Motley Fool. Surging gold and silver prices have turned the FTSE 100 miner into a cash generating machine of totally epic proportions. But just how long can the party last?
Runaway train
I liken the move in the stock to that of a runaway train. After years in the doldrums, and with sentiment across the industry in the dumps, today everyone wants a piece of the action. Despite the price trebling in price in 2025 alone, the stock is up 15% in the last week.
In the last few days gold prices hit a record high of over $3,500 and silver broke through the psychological barrier of $40. The cause for this move was the announcement of impending interest rate cuts by the Federal Reserve (Fed), the US central bank.
The urgency to cut interest rates has become paramount for the Fed. Spiralling deficits mean that interest rate on their debt is greater than the nation’s defence budget. With the debt expected to continue to grow over the next decade, gold and silver has become the asset of choice for foreign central banks.
Inflation or deflation
One of the biggest uncertainties debated among economists these days is whether the US economy is about to witness inflation or deflation. There is certainly evidence on both sides.
On the inflationary front, the falling US dollar means it is rapidly losing its status as a safe-haven asset. A falling dollar makes owning hard assets (like oil and base metals) more compelling for investors. This is inherently inflationary.
As data centre expansion explodes across the US, electricity prices are surging. This is on top of food price inflation and the push towards more expensive renewable energy uptake.
On the other side of the coin, if the US economy does falter, and a recession ensues, then deflation would set in. One clear reason why the Fed would cut rates is because the economy is weakening.
Gold cycle
Personally, I don’t think it matters which one is correct. Gold has a history of performing well in both types of environments. This includes the inflationary decade of the 1970s and the deflationary bust following the 2008 global financial crash.
Other than US Treasuries and the dollar, gold is the only other tier-one asset out there. The Chinese central bank has been repatriating precious metals in record amounts from London and New York vaults. Russia, too, has also been a heavy buyer, with some reports highlighting it has recently turned its attention toward stockpiling silver.
Risks
One of the biggest dangers for Fresnillo now is that if the US enters a recession, silver prices could fall significantly. This is because, unlike gold, it has several industrial applications making it particularly sensitive to economic activity.
But when I look at the bigger picture, this gold bull market remains very much in the early innings to me. With the miner’s all-in sustaining costs (AISC) hovering around $2,000 for gold and $17 for silver, prices would need to totally collapse in order for its margins to dry up. For investors looking to capitalise on surging metal prices, it is certainly a stock worthy of further research.
