Inflation in parts of the globe is soaring at jaw-dropping pace. However, I think the market could be underestimating the scale of the crisis, leaving plenty of scope for safe-haven assets like gold to rise in price.
Take latest consumer price inflation from the US, for instance. On Thursday, it was announced that prices rose 7.5% year-on-year in January, a fresh 40-year high. This was also up considerably from 7% in the prior month and above broker forecasts of 7.3%.
Gold prices sprung back above the $1,840 per ounce marker in response and to within a whisker of three-month highs.
With energy and labour costs surging and supply disruptions continuing it appears as if inflation should keep rising. In the UK, the Bank of England now expects consumer prices to be up 7.25% year-on-year in April. This is up from a prior prediction of 6% made just three months ago.
Limited firepower?
All this data doesn’t necessarily mean that gold prices will surge. Central banks have been raising rates to counter the scale of rising prices and they’re expected to keep doing so. This has certainly compromised gold’s ability to rise in recent months.
That said, a big question remains over how far central banks will be able to increase interest rates without choking off the economic recovery. I think the stage could be set for precious metals prices to run and run.
A golden penny stock
Centamin is a UK share I’m thinking of buying to make money against this backdrop. It pulls gold out of the ground from its Sukari mine in Egypt, a project from which it is steadily ramping up production. It also has exploration and development projects under way in Côte d’Ivoire and Burkina Faso.
Bringing new mining assets on stream can be extremely costly business. And any overruns on its capital expenditure plans could have a big impact on future dividends. But as things stand today, City analysts expect Centamin to continue paying big dividends over the short-to-medium term.
Dividend yields sit at 5.2% and 5.3% for 2022 and 2023 respectively. This makes it a very attractive dividend stock, in my opinion.
Another top dividend stock
I’m also considering investing in Sylvania Platinum today. The precious grey material that it pulls off the ground is a dual-role metal. This means that demand can rise when investors are nervous, and also when the economy grows. Platinum group metals (PGMs) are used chiefly to make catalytic converters for cars and creating jewellery.
This dual-role status however means that Sylvania’s profits could suffer if the economic recovery runs out of steam. This is something that gold miner Centamin’s investors don’t need to be worried about. Still, this is a risk I could be willing to take given the company’s cheap share price. It trades on a P/E ratio of below 4 times.
This, as well as Sylvania’s big yields of 7.2% and 5.6% for this year and next respectively, means the South African miner offers stunning value right now.