Market volatility has accelerated recently as concerns over the global economy have risen. Shares of all sizes (from the mightiest FTSE 100 business to the smallest penny stock) have been oscillating wildly in recent sessions.
Does mean I should take a pause and stop buying UK shares for the time being? I think the answer is an emphatic ‘no!’
This is because I buy shares based on what long-term returns I can expect to make. The prospect of temporary share price volatility doesn’t put me off.
It’s also because I think many UK shares are in great shape to thrive in the current economic environment. One top penny stock I think could soar in price is Shanta Gold (LSE: SHG).
Going for gold
I’m still considering buying gold stocks despite the yellow metal’s recent reversal back below $1,900 per ounce. This is because investor tension remains high and demand for safe-haven bullion could soar again.
According to the World Gold Council (WGC) gold demand hit 1,234 tonnes in the first quarter. This was up 34% year on year and the highest quarterly figure for almost three-and-a-half years.
The WGC noted that “the Ukraine invasion and surging inflation were key factors” driving gold demand in the last quarter. These phenomena remain very much in play as we move into the middle of 2022.
Stagflation worries grow
In fact I think the outlook for gold has improved as data suggesting a stagflationary environment stack up. This economic term refers to a period of stagnating economic growth and high inflation.
GDP data from the US showed the world’s largest economy shrink 1.4% between January and March. A rise of around 1% had been expected by economists on Thursday. This followed latest data showing consumer price inflation hit fresh 40-year highs in March.
Stagflation is a perfect recipe for driving gold prices higher. Yellow metal prices sprung back above $1,900 per ounce following those US growth numbers on Thursday.
Earnings tipped to soar
I think Shanta Gold in particular could be a great gold stock to buy for my portfolio today. For one, exploration and development work at its African assets continues to impress. It remains on course to become a 100,000-ounce-per-year gold digger next year.
City analysts think Shanta will move back into earnings growth in 2022. They think profits will leap 47% next year too as new production comes online.
I also like Shanta because of its dirt-cheap share price. At 10.3p, the company trades on a forward price-to-earnings (P/E) ratio of 9.3 times.
It’s true that current earnings projections could be downgraded if production disappoints. They might also be revised if gold prices sink. But it’s my opinion that these risks are baked into Shanta’s rock-bottom share price. I think this could be one of the best penny stocks for me to buy in the current environment.