Fresnillo looks ready to drop

Declines in the price of silver call into question how long Fresnillo’s rally can be sustained.

Source: Bloomberg

Silver miner Fresnillo has seen its shares rally in recent sessions even as the silver price tests a new low.

This divergence raises the question as to whether the bounce in the share price can be sustained. We have already seen production at the firm begin to falter, and while Fresnillo expects output to rise over the coming year, the immediate future looks difficult.

The chart below shows the clear divergence between Fresnillo’s share price and the silver price:

Over the past four sessions, the Fresnillo share price has failed to make much progress beyond the £7 level.

If we see a break lower from this point then the next target becomes key November support around £6.70.

A daily close below here raises the prospect of a move back to £6, the lows of September, as Fresnillo’s share price plays catch-up with the bearish developments in silver:

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