It’s my belief that gold prices could be about to soar. And I’d play this theme by purchasing shares in gold-producing penny stocks like Shanta Gold (LSE: SHG).
Gold prices are being pulled in opposite directions by rising inflationary pressures and frantic central bank action to tame them.
Major central banks are tightening policy in a way we haven’t seen for many years. This week, Hungary’s national bank grabbed headlines by raising rates by an eye-popping 1.85%, the biggest hike since the beginning of the 2008 financial crisis. Analysts had been expecting a more modest half-percent increase.
National banks are in crisis mode as inflation rises. Most eyes are on the US Federal Reserve and the possibility of three further rate increases in 2022. There’s a possibility though that banks across the globe will keep aggressively tightening policy, a major threat to bullion prices.
Inflation accelerates
I think, however, that inflation could keep heading through the roof despite ongoing central bank action. After all policymakers have so far been unable to tame the inflationary beast through monetary tightening.
What’s more, their appetite to act may be severely compromised if economic conditions weaken drastically. The head of the World Bank, David Malpass, recently told CBS that it will be “very hard” for some countries to avoid moving into recession.
He added, too, that “it’s going to take months and months, and maybe two years, to bring inflation back down”.
So why Shanta Gold?
On top of those economic factors, demand for gold could also rise as geopolitical tensions rise between Russia and China and the West.
But I wouldn’t buy gold itself or a financial instrument like an ETF that tracks the gold price. I’d rather buy a gold mining stock like Shanta Gold that also pays a dividend. This AIM share carries a decent yield of 2.2% for 2022.
I also like Shanta Gold because of the steps it’s taking to drive production higher. If successful, this could see profits outperform broader movements in the gold price.
A top long-term buy
The business produces gold from the New Luika mine in Tanzania. Production here is expected to range between 68,000 and 76,000 ounces in 2022. And it’s on track to bring its Singida asset in the country online in the first quarter of 2023. If everything goes to plan this will drive group production above 100,000 ounces a year.
On top of this, Shanta owns the high-grade West Kenya Project, which could yield terrific long-term rewards. The firm’s described work here as “[the] most consistently high-grade drilling programme we’ve ever conducted at any asset in [our] history”.
Shanta Gold is a penny stock I’d buy for the current inflationary environment and look to hold onto for years.