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.

Pendragon

Car retailer Pendragon (LSE: PDG) has slumped in value recently as concerns over the cost of living crisis have mounted. In fact, recent action by online motor seller Cazoo illustrates the growing pressure facing these sorts of stocks.

On Tuesday, the business announced it was cutting 750 jobs, warning of a possible recession “in the coming months”. Investors in Pendragon need to be prepared for extreme sales pressure in the near term then.

That said, it’s my opinion that the penny stock’s rock-bottom valuation reflects this danger. At 57.8p per share, Pendragon trades on a forward P/E ratio of just 7.5 times.

As a long-term investor I think recent share price weakness represents an attractive dip-buying opportunity for me. This is because I believe Pendragon’s profits could soar over the longer term as demand for electric vehicles (EVs) takes off. Around 44% of Britons plan to buy an EV in the next 10 years, according to official data.

Shanta Gold

I believe too that investing in Shanta Gold (LSE: SHG) could be a good idea right now. I’m tipping precious metals prices to have a fresh run higher as inflation soars and global growth slows.

Many economists are becoming increasingly gloomy over conditions, a scenario that could supercharge demand for safe-haven gold again. The World Bank this week, for instance, slashed its 2022 global growth forecasts to 2.9% from 4.1% on account of “the war in Ukraine, lockdowns in China, supply chain disruptions and the risk of stagflation”.

There’s no guarantee that gold prices will rise in this climate. And this could cause profit forecasts at metal producers like Shanta Gold to slide. The World Gold Council says that gold-backed exchange-traded funds (ETFs) saw outflows of 53 tonnes in May. A possible resurgence in the US dollar is one threat to precious metals’ prices going forward.

However, on balance, I think gold demand could rise strongly. Inflationary looks set to remain higher for longer as the war in Ukraine drags on and broader supply chain issues endure. The World Bank also noted this week that “global inflation is expected to moderate next year but it will likely remain above inflation targets in many economies”.

I’d buy Shanta Gold, given the shaky economic backdrop. And I’d also add it to my portfolio because of the work it’s undertaking to supercharge production at its African assets. I think this could deliver excellent long-term returns. The penny stock remains on course to become a 100,000-ounce-a-year gold producer next year.

At 9.3p per share, Shanta Gold trades on an ultra-low forward P/E ratio of 8.2 times. Like Pendragon. I think it’s a brilliant bargain for me to load up on today.

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.

Riding the electric car boom

Surging tin prices have helped blast AfriTin Mining’s (LSE: ATM) share price through the roof. The penny stock recently closed at record peaks of 7.8p per share but has sunk from these highs due to choppy metal prices. I think this could represent an attractive buying opportunity.

As its name suggests, the business is involved in producing tin in Africa (and more specifically Namibia). This is a commodity that could be set to soar in value as demand for consumer electronics and electric vehicles (EVs) takes off. The metal that AfriTin produces is being used increasingly as a soldering material instead of lead.

But the commodities producer is about more than just tin. AfriTin has spoken previously about adding tantalum and lithium to its product suite and this month announced it had found spodumene near its flagship Uis asset. The lithium-bearing mineral could significantly boost AfriTin’s exposure to the booming EV market where it is used to make batteries.

AfriTin has plenty of potential, then, but its shares don’t exactly come cheap. The business trades on a forward price-to-earnings (P/E) ratio of 23.3 times. It’s the sort of premium rating that could prompt a sharp share price reversal if the company experiences trouble.

However, this is a risk I could be willing to take given the excellent long-term potential for its metals.

A safe-haven penny stock

The Covid-19 crisis and tragic events in Ukraine show that holding gold, gold-based financial instruments, or precious metal-producing stocks could be a good plan. History shows that bullion prices rise during social, economic, and political crises when riskier assets like shares sell off. So having a gold-based investment at all times can help protect one’s portfolio.

This is why I think holding Shanta Gold (LSE: SHG) shares could be a good idea for me today. Buying this particular gold miner gives me the chance to receive dividends along with the benefit of riding the gold price. This is something that owning bars, coins, or a metal-backed financial instrument like an exchange-traded fund (or ETF) doesn’t. Oh, and the yield at Shanta sits at a healthy 2.3% for this year.

Gold prices came within a whisker of reaching new highs last week as Russia intensified its operations in Ukraine. The conflict is ongoing and so fresh attempts could be around the corner in the coming days. Regardless, I think bullion will take out the current record above $2,070 per ounce as inflationary pressures accelerate. The Bank of England, for example, now says British consumer prices could rise more than 8% later this year.

Owning mining shares like Shanta Gold means that investors burden themselves with the extra risk of production problems that could decimate profits. But it’s my opinion that the potential long-term benefits of owning this particular Tanzania-focussed miner still make it a great buy for my portfolio right now.

Good as gold

Getting exposure to gold remains a good idea in my opinion as inflation shoots through the roof. The yellow metal rises in value when prices rocket and it increased again following some shocking data today from the US. The Consumer Price Inflation (CPI) rate in the US jumped to 7.9% in February, a fresh 40-year high. It’s likely to keep advancing too as the price of energy grows.

I’d buy shares in Shanta Gold (LSE: SHG) to make money from gold’s move towards new record highs. Investing in producers of the metal instead of the commodity itself — or a financial product that tracks price movements like an ETF — involves a higher degree of risk because it exposes investors to the complicated and often expensive business of mining.

However, purchasing certain gold-producing stocks gives me the chance to receive dividends while piggybacking on the gold price too. The dividend yields over at Shanta Gold are pretty handy, if not exactly spectacular. A predicted reward of 0.2p per share creates a decent yield of 2.1%.

I don’t think Shanta’s current price of 9.4p per share fully reflects the bright outlook for gold prices as tragic events in Ukraine drag on and global inflation soars. This gives me a chance for me to nip in and grab a bargain. Today the Tanzania-focussed miner trades on a forward price-to-earnings ratio of just 7.2 times.

Another penny stock I’d buy today

The soaring cost of raw materials in response to sanctions on Russia poses a significant threat to electric vehicle sales in the near term. Prices of critical commodities like nickel, copper, and zinc have all leapt on concerns of metal shortages and disruptions to supply chains. A sharp slowdown in auto production and a spike in vehicle costs could well be coming down the pipe.

Both of these threats could hit revenues at Trident Royalties (LSE: TRR). The royalties company holds stakes in a variety of base and precious metals assets across the world. And two of its key holdings are the Thacker Pass and Sonora lithium projects, in the US and Mexico, respectively. The former is due to start producing the key battery-making material in the next few months. And first production from the Latin American project is scheduled for 2023.

However, as a long-term investor I still find Trident Royalties highly attractive. Electric vehicle sales might take a whack in the short-to-medium term. But over an extended timeline, sales of these low-carbon vehicles still look set to soar as concerns over the climate worsen. The gradual phasing out of petrol and diesel vehicles over the next decade should certainly supercharge demand for the company’s lithium.

I also like Trident Royalties because it has exposure to various commodities across the globe. This gives it excellent strength through diversification. Like Shanta Gold, this is a penny stock I’d happily invest in right now.

Playing the gold price boom

Many gold-producing stocks have risen strongly as prices of their precious metals have ballooned. Shanta Gold (LSE: SHG) hasn’t recorded strong gains, however. Yet a look at the company’s share price suggests that it remains massively undervalued. Today its shares trade on a forward price-to-earnings (P/E) ratio of 7 times. I think this makes it a brilliant buy.

Demand for precious metals is rising spectacularly right now. Latest data from the World Gold Council showed holdings in gold-backed exchange-traded funds (or ETFs) rose 35.3 tonnes (or 1%) in February. The organisation thinks safe-haven demand for bullion could continue climbing too.

It says that “the risk of economic slowdown amid high inflation could complicate monetary policy decisions, further supporting investment demand for gold.” Central banks may have to maintain a landscape ultra-low rates following the Russian invasion of Ukraine. This would help gold prices and by extension Shanta Gold’s revenues.

Intensifying safe-haven demand has today driven gold to its most expensive since summer 2020, above $2,000 per ounce. Yet the tragic events in Eastern Europe aren’t the only reason why gold could keep climbing. Growing Covid-19 cases in China (which have just hit two-year peaks), for example, could also drive the yellow metal northwards.

My main concern for Shanta Gold is the highly-complex nature of its operations. Profits-sapping production problems can be common for miners. And this can have a significant impact on shareholder returns. In my opinion, though, this threat is reflected in the company’s ultra-low share price.

Another unloved penny stock I’d buy

Like Shanta Gold, the Brickability Group (LSE: BRCK) share price also offers terrific value right now. Today the building products manufacturer trades on a forward price-to-earnings growth (PEG) ratio of 0.3. This is well inside the benchmark of 1 and below that suggests a stock could be undervalued.

Brickability’s share price has been edging steadily lower since the end of 2021. And today it’s slumped to its cheapest for almost a year. This to my mind represents a great dip-buying opportunity. I think the rewards of owning this stock outweigh the potential risks that rising interest rates create for the housing market. Higher rates are bad for buyer affordability.

I’m encouraged by a steady stream of positive data showing how strongly UK homes demand continues to grow. Just today Nationwide said that homes prices rose at their fastest rate since 2007 as demand continued to outstrip supply. Average property values have now grown for eight months on the spin, according to the building society.

Britain’s major housebuilders are planning to exploit this fertile trading landscape by building their land banks and upping their production targets. This all bodes well for Brickability and its profits column. This is a penny stock that could thrive over the next decade as the building boom continues.   

Today’s fall was triggered by news of technical issues at its New Luika gold mine in Tanzania. These have now been fixed, according to CEO Eric Zurrin. My sums suggest that if Shanta’s 2022 forecasts remain unchanged, this stock could be seriously cheap after today’s crash. Should I consider buying Shanta Gold shares for my portfolio after today’s crash?

What’s gone wrong?

Gold production at Shanta’s flagship New Luika mine has been held back during the fourth quarter by two technical issues. The company says it’s experienced “operational difficulties” relating to supplies of an “unreliable emulsion product” and problems with underground charging units.

According to chief executive Zurrin, emulsion supplies are back to normal, and the charging units have now been fixed.

Unfortunately, these issues forced the company to temporarily change its mining schedule to focus on less productive areas of the underground mine. As a result, Shant’s 2021 gold production is now expected to range 55,000-57,000 ounces this year. This compares to previous guidance in August for 60,000-65,000 ounces.

Why I think Shanta could be cheap

Today’s news is disappointing, but it doesn’t sound too serious to me. 2021 was always expected to be a transitional year for Shanta Gold, with much lower profits than in 2020.

However, 2022 forecasts suggest a strong recovery in earnings. Ahead of today, broker consensus estimates for next year suggested Shanta could generate a net profit of $18.6m in 2022. That’s equivalent to forecast earnings of $2.1 cents per share. At Shanta Gold’s current share price, I estimate that this would price the stock at just six times 2022 earnings.

It’s too soon to be sure, but based on today’s announcement, I don’t see any reason why 2022 forecasts should be cut. If I’m right, then I can see some potential value here, especially as Shanta’s financial position remains strong, with around $20m of net cash and available resources.

Should I buy now?

Shanta has several interesting exploration projects underway but, at the moment, all the company’s revenue comes from the New Luika mine. This means any disappointment here can have a big impact, as we’ve seen today.

One concern for me is that Shanta’s gold production also fell during the first half of this year. This was caused by lower quality ore containing less gold than in 2020. Today’s disappointment adds to this shortfall.

After such a difficult year, I’m not sure how confident I can be in forecasts for 2022. More problems might lie ahead. Although I can see some attractions at Shanta Gold, the situation feels too speculative for me.

For this reason, I won’t be buying Shanta shares today. However, I will keep watching for further news.

News of this fresh mutation has reinforced my belief that gold prices will remain robust. Though in truth I’ve been a fan of UK gold shares as an asset class long before the discovery of the Omicron variant. I thought getting exposure to the yellow metal was a good idea as inflation ran rampant across the globe. Latest figures on this front suggest that this particular issue could keep supporting metal prices as well. Data today showed eurozone inflation hit record highs of 4.9% in November.

Looking good for gold!

Central banks have begun tightening monetary policy to contain this threat, with others (like the Bank of England) tipped to act in the weeks and months ahead. This new mutation could hamper policymakers’ intentions if it poses a danger to the economic recovery. And it would provide the perfect conditions for gold to continue ascending.

There’s no guarantee that gold prices will continue marching north, of course. Increasing bond yields could stymie any further increases, as could soaring safe-haven demand for the US dollar. A ballooning buck essentially makes it less cost effective to purchase dollar-denominated assets like gold.

All things considered, though, I still think the gold price outlook is extremely bright. 

Full steam ahead?

I wouldn’t just buy Shanta Gold on the back of the gold price outlook, however. I’m also encouraged by ongoing exploration and development work at its African assets, news of which continues to reinforce the company’s profits picture beyond the near term.

This week chief executive Eric Zurrin described exploration work at its West Kenya project as “our most consistently high-grade drilling programme we’ve ever conducted at any asset in Shanta’s history”. This follows positive drilling work at its flagship New Luika mine in Tanzania which prompted the firm to last week raise the current reserve life through to 2026.

Critically, construction work at Shanta’s Singida asset in Tanzania is also on track (maiden output here is scheduled for 2023). This should turn the business into a 100,000-ounce-per-year gold producer.

A dirt-cheap penny stock on my radar

I think Shanta Gold shares are especially attractive at current prices of 12p. City analysts think the miner’s earnings will leap 179% year-on-year in 2022. Consequently Shanta trades on a forward price-to-earnings (P/E) ratio of just 7.5 times.

This low valuation leaves plenty of room for fresh share price strength, in my opinion. And particularly so if another stock market crash pushes investors towards safe-haven assets like gold. I’d happily buy this top penny stock for my portfolio today.

A top penny stock

I think Shanta Gold (LSE: SHG) could be a great penny stock to ride to play the gold market. This isn’t just because the precious metals digger is taking steps to ambitiously bolster production levels. It’s also due to rising inflationary expectations which should steadily increase demand for non-paper currencies like bullion. Shanta Gold shares trade at 13p apiece.

Prices are soaring because of supply-side disruptions and labour market shortages. A survey by the New York Federal Reserve revealed how strongly inflationary concerns are growing on the back of this, its gauge of consumer expectations just hitting eight-year highs. It’s possible that central banks could keep this inflationary environment going for longer, too, if they maintain their ultra-loose policies to help the recovery.

Though remember that commodities prices can do down as well as up. Signs of progress in the fight against Covid-19 could hit gold prices again like it did at the start of 2021. A more bearish tone by central banks (and especially the Federal Reserve) could hit bullion prices as well, and by extension the bottom line at cheap UK share Shanta Gold.

Another top cheap UK share I’d buy

Tharisa (LSE: THS) is another cheap UK precious metals share I’d buy today. This is because the same drivers that I think will support gold prices will help platinum group metals (PGMs) remain strong. Tharisa changes hands at 110p per share.

There’s the issue of runaway inflation that could prompt a fresh pile-on into safe-haven metals. In addition, concerns over runaway prices in the US — and its impact on the domestic currency — would be particularly positive for expensive metals. These commodities are primarily traded on a US dollar basis. It therefore costs less in foreign currencies to buy PGMs when the greenback drops in value than it would otherwise.

There’s a string of other frighteners that could boost prices of platinum, palladium et al. Direct worries over the direction of travel in the fight of Covid-19 is one. Signs of worsening relations between major economies (and in particular with regards to trade) is another.

But I also think PGM prices will rise as demand for them from the automotive sector grows. New emissions standards coming into effect in China and Europe look set to turbocharge off-take in the near-term (the commodities are used in catalytic converters to reduce emissions). Demand could receive a further boost if, as expected, additional legislation to reduce carbon discharge comes into effect. I’d buy cheap  UK share Tharisa despite the difficulties of mining for metals which can have a big impact on profits.

As a long-term investor I’m not discouraged by the possibility of wild price movements, however. If one takes the time and effort to identify quality stocks there’s a great chance they’ll rise in price over an extended time horizon, regardless of their initial purchase price.

Here are two UK penny stocks I’m thinking of buying for the next decade.

A cheap UK penny stock on my radar

Having exposure to gold is a good idea as insurance against unforeseen economic crisis. And I think a good way for me to do this is by buying penny stock Shanta Gold (LSE: SHG). At current prices of 13p per share this African gold producer trades on a forward price-to-earnings (P/E) ratio of just seven times.

I wouldn’t just snap up this UK share because I think bullion prices could soar again as inflation rises and the US dollar erodes. The business is taking steps to supercharge production from its top-quality Tanzanian assets that will result in average annual production of 116,000 ounces per year between 2023 and 2025. This compares with the 83,000 ounces of metal which Shanta heaved out the ground in 2020. Moreover, under its new five-year plan, the penny stock also plans to rapidly slash its cost base over the period.

I think there’s a lot to like about Shanta Gold today. But it’s important for me to remember that the business of metals mining is fraught with challenges that can hit production levels and result in unexpected costs, driving a spike through profits forecasts. It’s quite possible, then, that earnings at this Tanzanian mining play could fall short of expectations.

Telecoms titan

Airtel Africa (LSE: AAF) could also be one of the best low-cost penny stocks for me to buy right now. At recent prices of 89p per share the African telecoms titan trades on a forward P/E ratio of seven times. This figure also sits inside the widely regarded bargain watermark of 10 times and below.

It’s true that Airtel Africa’s markets are becoming increasingly competitive. Local operators like Africell and global giants such as Vodafone invest heavily are investing heavily in their networks. It’s also correct that the penny stock’s operations are highly capital intensive which can deal a blow to earnings growth. But I think this penny stock’s long-term profits outlook still looks mighty exciting.

A rapidly rising middle class in Airtel Africa’s sub-saharan markets is driving telecoms demand to the stars. The boffins at Fitch think that there will be 1.1bn mobile subscribers by the end of the decade, up from around 851m as of last year. And looking away from telecoms for a second, I expect demand for Airtel Africa’s mobile money services to balloon as demand for financial services also grows.