UK penny stocks can be a divisive topic of investing conversation.
There are those who won’t touch these low-cost shares with a bargepole. This is because they can be prone to bouts of severe share price volatility. But then there are others who think penny stocks — so-called because of their sub-£1 price tags — provide a chance to discover some gems that have been overlooked by the market.
As a long-term UK share investor I’m not afraid to buy these cheap shares for my own Stocks and Shares ISA. Sure, prices of low-cost equities can be choppy at times. But as someone who buys shares and holds them for a number of years, this doesn’t worry me. Like any stock, penny stocks with strong fundamentals can be expected to provide great returns over a long time horizon.
A golden penny stock
I’m seriously thinking of adding SolGold (LSE: SOLG) — which trades at 30p per share — to my ISA today. Having exposure to gold is always a good idea as it can protect my stocks portfolio from total washout when social, economic or political crises unexpectedly emerge. This was certainly the case in 2020 when the shock Covid-19 outbreak supercharged demand for safe-haven precious metals. The gold price’s subsequent surge to record highs propelled the share prices of gold producers and explorers like SolGold.
Gold values have fallen quite a bit from last summer’s all-time peaks around $2,067 per ounce (that was in August). But I think yellow metal prices could move higher again as ultra-loose monetary policy reigns. As the World Gold Council (WGC) notes: “A levelling in interest rates on the back of accommodative global monetary policies, combined with rising money supply and further inflationary pressures, may support gold investment demand.”
I think the stage could be set for gold prices to rise from their current levels of $1,750 per ounce. And especially so if the recent resurgence in coronavirus cases continues and fear-based buying of bullion re-emerges. It’s a scenario that could pull penny stock SolGold’s share price to the stars once more.
An attractive UK share
Of course there’s no guarantee that gold prices will soar again. But this is not the only danger. SolGold’s share price might fall even as gold prices jump if the company encounters fresh operational problems. Exploration is often no walk in the park and this penny stock is no stranger to experiencing delays in recent times. What’s more, disappointing results when that exploratory work comes in is another potential issue that can hammer the prices of UK shares like these.
That being said, I still think SolGold is an attractive penny stock to consider buying today. I think the quality of its assets on the Andean Copper Belt, and the bright outlook for precious metal prices, both make it worthy of serious attention.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.