Here are two that I think could rally going forward.

Why gold could keep going

I believe the gold price can continue to rise this year. One reason for this is that gold doesn’t pay interest. So it typically performs better when interest rates are falling. Given that I think major central banks will cut rates this year, this should help to boost the gold price.

Another reason why gold could rally is it’s regarded as a safe haven asset. US tech stocks are at all-time highs, with some saying it’s starting to look like a bubble. If the bubble pops and people get spooked, I think gold could soar.

A small-cap option

Shanta Gold (LSE:SHG) is an AIM-listed UK share. But the company itself is an East Africa-focused gold producer, developer and explorer.

Given a market-cap of just £140m, it’s a small UK stock that could really take off if the rally in the gold price continues. Over the past year the share price is up 18%, almost mimicking the move in gold.

Unlike some other small commodity companies, Shanta Gold has working mines that generate gold. In 2023, it produced 71,248 gold ounces from the New Luika mine, with an average selling price of $1,948. If we assume that 2024 yields the same production figures, but can have an average selling price of $2,100, this would boost revenue by an additional 7.8%.

Given the ability for production to increase from other projects going forward, I see a lot of potential for the stock to benefit from higher gold prices.

A risk is that the share price can be distorted by speculative short-term traders reacting to new project news. This means high volatility, which can make it hard to cut through the noise.

A heavy hitter

At the other end of the size scale is Centamin (LSE:CEY). The FTSE 250-listed firm has a market-cap of £1.13bn. Over the past year the share price has fallen 9%.

The firm operates the Sukari Gold Mine in Egypt and produced 450,058 ounces of gold in 2023. Interestingly, the company reports the all-in sustaining cost of operating, which last year was set at $1,399 an oz.

Therefore, I expect the business to flag up in the next quarterly report the benefit of a gold price well above $2,000. This boost to profit margins should aid profitability.

For sustainability, the gold mine has an estimated 6 million ounces of unmined gold mineral reserves. Certainly, this bodes well for the future. However, one risk is that the business isn’t a diversified miner. Therefore, the lack of other commodity production could be a concern for those who want to purchase a balanced mining stock.

Ultimately, based on my view on gold, I’m thinking about adding a small position in both companies.

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Forecasters at ING Bank have predicted that “the speculative buying interest for gold is likely to continue in the near term, given the ongoing geopolitical tensions and expectations of lower interest rates in the US.”

Growing belief that the Federal Reserve will slash rates in 2024 — and potentially as early as March — have propelled gold higher. A subsequent fall in the US dollar has boosted appetite for the metal too. A declining greenback makes it cheaper to buy the dollar-denominated asset.

As ING mentioned, geopolitical chaos in the Middle East has also bolstered demand for safe-haven gold. A resumption in fighting between Israel and Hamas has reignited speculation of a full-blown conflict in the region.

Two top gold stocks

Buying gold stocks could be a great way for me to build wealth in this climate. As well as leading to some considerable share price gains, bigger profits at mining companies might also result in some fat dividends.

Conversely, buying physical gold, or an exchange-traded fund (ETF) that tracks the metal price, doesn’t pay any income at all.

What’s more, buying shares in strongly-performing companies can provide me with superior returns than if I’d simply bought gold bars or one of those ETFs. Remember though, that the reverse can be true, and that businesses suffering operational troubles can provide poor returns even when gold prices rise.

With all this in mind, here are two top gold stocks I’ll be seeking to buy at the next opportunity.

1. Centamin

FTSE 250-quoted Centamin is one of the biggest gold miners on the London Stock Exchange. In 2023 it’s on course to produce around 450,000 ounces of the precious metal. And it’s expanding its flagship Sukari mine in Egypt to produce more than 500,000 ounces per annum at low cost within the next couple of years.

The company also has a number of exciting early-stage assets in the North African country and the Côte d’Ivoire.

Centamin is one of those gold miners that’s also tipped to pay an income. Indeed, for this year and next its dividend yields sit at a healthy 3.1% and 3.5% respectively. I think its a top buy despite the constant threat of production-related issues.

2. Shanta Gold

Tanzania-focused Shanta Gold is also on my wishlist today. Its dividend yield isn’t as high as those of Centamin. But it still sits at a handy 1.6% through the next two years.

This Alternative Investment Market (AIM) company owns the ultra-low-cost New Luika and Singida gold mines where production continues to rattle along nicely. In fact, production at the latter asset beat estimates by 15% in the last quarter.

Recent takeover target Shanta also has a vast exploration asset in Kenya, which it has described as one of the “highest-grading gold projects in Africa.” Drilling work has been hugely encouraging so far. But remember that disappointing testing or development work further down the line could hit the share price.

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Yet snapping up these small-cap shares can also yield spectacular results far ahead of the market average. With this in mind, here are three I’ll be looking to buy when I have spare cash to invest.

Shanta Gold

Signs of ‘sticky’ inflation across the globe means that getting exposure to gold could be a good idea. As the value of paper money erodes, investor demand for ‘hard currencies’ like bullion picks up.

I’d buy Shanta Gold (LSE:SHG) to capitalise on this supportive environment. It owns the Singida yellow metal mine in Tanzania, an asset where production is beating forecasts following a recent ramping up. It also operates a string of exploration assets, including in West Kenya, where drilling results have been especially impressive.

Mining is complex and expensive business. And operational problems can have a significant impact on shareholder returns. But the impressive momentum at Shanta suggests it might be a great stock to own.

Kodal Minerals

Buying lithium stocks also offers exceptional long-term investing potential. Rocketing electric vehicle sales mean that demand for key battery materials are also rising strongly.

I like the look of penny stock Kodal Minerals (LSE:KOD) today. It owns the Bougouni mine in Mali which, when up and running, could produce 220,000 tonnes of the lithium-rich mineral spodumene each year.

Early-stage miners can be especially risky because of their weaker balance sheets. But Kodal looks safer than many other London-listed commodities plays. In January it obtained significant funding from China’s Hainan Mining this year that it said provides full financing for the development and start of production at Bougouni.

Renold

One good way to ride the new commodity supercycle might be to buy so-called pick and shovel stocks. These are the companies that provide the goods and services that let miners (or indeed any business) do their thing.

Industrial component maker Renold (LSE:RNO) is one such share on my radar today. It makes chains, gears and couplings that are used on the conveyor belts and buckets that let miners pull minerals from the ground.

Pick and shovel stocks offer a huge advantage to risk-averse investors. Even if a mining stock encounters operational problems, they will still need the products that the likes of Renold supply. This tends to give the latter a solid stream of revenues.

That’s not to say that this penny stock is immune to trouble, of course. If a wider industry downturn happens and miner profits sink then demand for its chains and other hardware might fall.

But, encouragingly, the business sells its products to a wide range of sectors. These include agriculture, transport, energy, utilities as well as mining. So its reliance on strong conditions in any one sector is reduced, cutting risk.

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Gold has been buoyant this year, coming within stroking distance of its all-time-record price of $2,075 – achieved in August 2020.

The yellow metal tends to rally during times of market uncertainty, because although it pays no yield it is free of ‘counterparty risk’.

That is, gold doesn’t represent an IOU that could be defaulted on, as is the case for most financial securities.

Prospecting for gold

Miners offer ‘leveraged’ exposure to the gold price.

That is, a small price increase in the precious metal’s price could produce a much bigger jump in the miner’s stock price. The same is true in reverse.

To start my search for the perfect FTSE AIM gold stock, I scanned through all of the companies with ‘gold’ in their name.

That returned 12 companies!

Next, I ruled out all of those that either had a market capitalisation under £50m or produced no revenue in the last financial year.

Micro-cap mining stocks are already an extremely high-risk asset class. Meanwhile, going down a rung into the ‘nano-cap’ segment (sub-£50m) would be turning up the dial a notch higher than my risk tolerance allows.

Moreover, companies with zero revenues are almost impossible to analyse using standard financial ratios.

After applying my filters, I was left with just one contender: Shanta Gold (LSE:SHG).

Meet the contender

Shanta Gold is an East Africa-focused producer, developer, and explorer with mines in Tanzania and Kenya.

Its Tanzanian assets are called the New Luika Gold Mine and the Singida Gold Project. In West Kenya, Shanta has a project for which it has obtained prospecting licences. It claims to have “defined high-grade resources” on the site.

Running out of time

After a quick look at the financials, I quickly ruled out Shanta for my portfolio.

Quite simply, I have an ironclad rule that I won’t consider any company that has less than a couple years’ worth of cash in its coffers.

Shanta reported negative net cash flows of £9.4m in the year ending 31 December 2022, with only £3.8m left in the treasury.

If it continues burning through cash at that rate, it will be illiquid before Christmas. Of course, it can kick the can down the road by loading on more debt. However, with a debt-to-equity ratio of 18, the company is already leveraged up to the eyeballs. The other option to save its bacon would be stock issuances, although that would dilute existing shareholders.

What next?

Given my risk tolerance won’t permit me to invest in any of the FTSE AIM miners I found, I will next consider the larger, better capitalised miners. FTSE 100 juggernaut Fresnillo could be a safer way to play things, although I’d have to delve further into the company before deciding.

For now, I can only conclude that – at least for my portfolio – all that is gold does not glitter.

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Could this be a glittering share worth tucking away in my portfolio for the coming years?

Positive developments

Lately a couple of things about Shanta have caught my eye.

Last month, the company updated the market on its reserves and resources. For the fourth year in a row, it has extended the mine life at its New Luka project in Tanzania by at least a year, thanks to exploration. The project now has 394,000 ounces of proven and probable reserves.

By growing its reserves and extending mine life, the company can potentially benefit from larger future sales volumes than would otherwise have been the case. Extending the life of a mine also means development costs can be spread over a longer production period, helping improve profit margins.

Last Autumn, Shanta announced that it had received approaches from three separate companies that could lead to a potential offer for the company.

In the end, no bid materialised. But the fact that a trio of mining companies had run the slide rule over Shanta and were mulling the potential attractiveness of buying it outright has made me reconsider the investment case for the company in more detail.

Share price outlook

A bid can push up a company’s share price (although that is never guaranteed and sometimes a bid has resulted in me receiving less money for my shares than I had paid to buy them, as for example, in the case of Stagecoach). But as a long-term investor, I buy shares based on a company’s financial outlook, not the potential for future takeover bids.

Improvement in the Shanta Gold share price over the past five years partly reflects its growing reserve base. That could continue growing with ongoing exploration.

The shares have also benefited from a strong gold price. However, with such a strong focus on the the yellow metal, Shanta’s profitability has been all over the place. In 2021, the company made a loss of $6.2m, but that followed a profit of $17.2m the prior year.

With a market capitalisation of around £115m at the current price, I think that sort of earnings potential when gold prices are high means the shares could offer me value.

But clearly, changes in the gold price are also a key risk for both revenues and profits at the business. With ongoing economic uncertainty around the world continuing to drive demand for gold, prices could remain high. If that happens, I think the share price could keep rising.

The company has no control over the gold price, however.

Its operations are concentrated in two east African nations. I think that means it faces higher political risks than larger miners with more diversified portfolios. Shanta does not meet my risk profile so I will not be investing.

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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.

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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.

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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.

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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.

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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.

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