Gold and silver prices are soaring. Buy this share for a piece of the action

Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest.

As regular readers will know doubt opine, this column has many weaknesses and one of them is the classic investor failing of selling winners too early (and holding to losers for too long, for that matter).

After a capital gain of two thirds in the past year, the temptation to take profits on Fresnillo is there. We shall resist and hold on to the silver miner, and not just because shareholders who are on the register as of next Monday (14 April) are due to collect a final dividend of $0.2610 a share and a special distribution of $0.4180 on May 30 in the wake of last month’s full-year results (March 4).

Those dividends are welcome, as they will take our total yield on the stock to some 10pc since our initial study, but capital gains are really the name of the game at Fresnillo. Even modest changes in silver and gold prices will lead to big increases in profits and, for the moment, both precious metals are motoring.

Fresnillo is the world’s largest silver producer, based on 2024’s output of 56.3m ounces, while is also produced 631,573 ounces of gold last year. At the time of writing, gold trades at a new all-time high of $3,155 an ounce and silver is fast approaching a 12-year peak just north of $34 an ounce.

The danger is that both metals roll over and their prices go lower, since that would crimp profits and dividends just as quickly as the last year’s gains have helped them. In the past year, the share price may be up by two thirds, but the forecast one-year forward dividend yield is now 3.8pc, up from 1.7pc 12 months ago, while the one-year forward price-to-earnings ratio is now barely 15 times, down from 28 times.

This is because profit forecasts have rocketed on the back of higher commodity prices. Fresnillo’s forecasts do not assume much output growth in the near term, so the metals (and careful cost management) will dictate the trajectory of profits, cash flow and dividends from here.

Our crystal ball is no better than anyone else’s, but the trend may just be our friend. Financial markets had priced in a cooling of inflation, steady economic growth and lower interest rates. President Trump’s trade and tariff policies are sparking worries that growth inflation could prove sticky, with the result that interest rates may not come down as fast as hoped, even if growth stumbles.

Former certainties are now looking like anything but that. Microsoft is at the epicentre of the AI industry, as a heavy spender on data centres and a big backer of OpenAI, but its shares are no higher than they were in January 2024. Silver and gold are both up by 50pc over the same period.

The years after the financial crisis offered low inflation, low growth and low interest rates, with the result that long duration assets such as growth and technology stocks did well (as did bonds), while cyclicals, value stocks and commodities did badly.

Maybe we are at an inflection point. If so, the price of gold and silver (and shares in their producers) could continue to come into their own.

Questor says: hold
Ticker: FRES
Share price: 948p

Update: Shell

Given the $11-a-share received in dividends coupled with our 40pc-plus capital gain in Shell over the past eight-and-a-half years we cannot help but be pleased by the oil and gas major’s new cost reduction, cash flow and capital return plans.

Wael Sawan, its chief executive, emphasised a commitment to liquid natural gas and plans to maintain oil output out to 2030. Meanwhile, the capital expenditure budget is to be capped at between $20bn and $22bn a year, with 10pc allocated to low-carbon projects, and costs are to be cut. The role within the group of some parts of the chemicals business will go under review.

The plan behind all of this is to grow cash flow per share by 10pc a year until 2030 and increase the percentage of operational cash flow that is returned to shareholders to 40pc to 50pc from 30pc to 40pc. Commodity prices can have a big say in the outcome here but the combined value of dividends and share buybacks in 2024 was $22.6bn, equivalent to around 10pc of the company’s current stock market capitalisation.

Any goal to try and increase that is noteworthy and likely to catch the eye of income-seekers, or at least those ones whose environmental, social and governance screens do not exclude hydrocarbon producers.

Questor says: hold. Things are about to get even better.
Ticker: SHEL
Share price: £27.87

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