I believe getting exposure to gold is a good idea as inflation surges. One way I’m thinking of doing this is by buying metal producer Petropavlovsk (LSE: POG). This penny stock offers exceptional value for money as it currently trades on a forward P/E ratio of 5.1 times.
Gold prices just hit their highest since mid-November at around $1,842 per ounce. They’re now within striking distance of August 2020’s record high of $2,069 and could be preparing for a fresh run.
I think Petropavolvsk could be a great UK share to ride this boom. And from a long-term perspective, I think there’s much to like too, as the company steadily increases output from its low-cost Pokrovskiy Pressure Oxidation (POX) production hub in Russia.
Gearing up for a gold rush
It’s been said that central bank interest hikes could damage gold prices and, by extension, profits at firms like Petropavlovsk. This has the potential to smack precious metals values and make it more expensive to hold assets like gold.
This is a possibility I need to consider. But I’m also aware that such tightening might actually have little effect on bullion prices. The World Gold Council (WGC) says: “While rate hikes can create headwinds for gold, history shows their effect may be limited.”
Besides this, the WGC also reckons that real rates (interest rates adjusted for inflation) will remain “depressed” even if central banks act again. It says that this is important “since gold’s short- and medium-term performance tends to often respond to real rates.”
Another top penny stock to own
I’m also considering buying Jubilee Metals Group (LSE: JLP) today for a couple of good reasons. First of all, this mining share also specialises in precious metals production, in this case the haulage of platinum group metals (PGMs) from the ground. These so-called hard currencies also attract massive safe-haven interest from investors when inflation soars.
As someone who invests for the long term however, it’s Jubilee Metals’ important role in the green economy which is attracting my attention. PGMs are bought in massive quantities by the auto industry where they are loaded into catalytic converters to reduce emissions. These materials are required in larger and larger quantities in trucks and passenger vehicles because environmental legislation is becoming steadily tougher.
The growing popularity of green hydrogen could also supercharge demand for Jubilee Metals’ product. Platinum is well-suited as a hydrogen fuel cell catalyst due to its ability to withstand high temperatures and complex chemical changes. It’s why the World Platinum Investment Council predicts that green hydrogen could boost annual platinum demand by up to 600,000 ounces by 2030.
Jubilee Metals trades on a forward P/E ratio of just 8.6 times today. Worsening economic conditions could hit demand for its semi-cyclical products hard and Jubilee’s profits too. But all things considered, I believe the possible rewards of me owning this penny stock far outweigh the risks.
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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.
