Fresnillo has been hammered down over the years, with major gains from Covid now being wiped. How will the Fed decision tomorrow impact its stock going forward?

Overview

Fresnillo is the world's biggest silver producer and a major gold producer in Mexico. The company is listed on the London and Mexican stock markets and is a constituent of the FTSE 100.

Financials

Taking a look at the company’s income statement, its revenue has fallen in 2022 compared to 2021. We can see that the cost of goods sold has increased, and as a result of smaller revenue the gross profit in 2022 only came in at $536m. A $400m decline YoY. After taxes and operating expenses, net profit fell to $271m from $421m, leading to weaker earnings per share price of $0.37 for the year. To increase the EPS, the company must either generate more revenue or reduce its cost of sales. It’s understandable that COS may have risen due to inflation and the current state of the world economy, but as long as the firm manages to keep its COS near the current levels while generating more revenue, it will produce a higher EPS. Over to the balance sheet, cash on hand still remains strong coming in near the $1bn mark as in the previous two years. Total assets have risen by a moderate $140+ million with only a $33 million increase in total liabilities. Hence, the company equity continues to grow, finishing the 2022 year at $3.916bn.

Technicals

From a technical perspective, its stock price closed today’s session at 702p a share. We can see the long-term bearish trend this stock has been in, dating back to 2016. It now faces support at 610p (blue trendline) followed by a key support at 458p (green trendline). A break below the green trendline could see it fall much further. Towards the upside, resistance sits at 815p followed by a tough level at 887p (along the red trendline). Only a break above 887p could see further upside. Looking at the indicators, MACD is negative and so is RSI as it reads 40. The rising interest rates have not done any favours, and another decision is yet to be made tomorrow.

Summary

Commodity prices for silver and gold are determined mainly by US Federal Reserve interest rates, the strength of the US dollar, and geopolitical events.

The US Fed is expected to make a statement on the future of interest rates tomorrow at 19:00 GMT.

It is important to note that the perception of risk in the global economy, the strength of the US dollar, and the influence of economic reform all have a significant impact on short-term gold and silver demand. Longer term, gold and silver are supported by rising social and economic growth in emerging nations, as well as the continuous view of gold/silver's position as a store of wealth.