Gold prices have been on a down streak, closing lower for 6 straight months, as the U.S. dollar has been on an upswing, bolstered by a positive outlook for the U.S. economy. December gold futures currently trade at around $1221 per ounce, above the $1200 mark, considered to be a key support level; prices have dropped about 10% overall since April. Investors looking for hints about the direction of the price of the precious metal will need to keep an eye on the dollar.

A recent consensus of analysts surveyed by Reuters expect gold prices to inch up to $1300 by the end of the year. However, those estimates were cut from a range of $1300 to $1500 prior to the tough second-quarter.

Speculating on the price of gold becomes doubly risky when also speculating on the price of gold penny stocks. Both the metal and the inexpensive stocks can be highly volatile. However, where there is a greater risk, there is greater potential for reward. For those interested in gold penny stocks, we have selected four that could do well when the price of gold recovers, despite these stocks having had a rough start in the first part of the year. (See also: What Drives The Price Of Gold?)

Here are four gold penny stocks that could do well should gold prices recover. As with all "penny stocks," investors should proceed cautiously. All figures are current as of October 12, 2018.

1. Golden Star Resources

Golden Star Resources Ltd. (GSS) is a gold mining company that owns and operates the Wassa and Prestea mines in Ghana, West Africa. Total revenues and operating income increased for five quarters through early 2018, showing that the company has a history of profitability. But in the most recent quarter, the company reported a loss versus a profit in the year-earlier period. The Toronto-based company recently announced that La Mancha Holding, a Luxembourg-incorporate gold investment company, has invested $125.7 million in cash into Golden Star through a private placement.

The stock has dropped to about $.74 per share, as of October 12, 2018, a decline of almost 17% year-to-date. It found support at this price recently, so investors should watch to see if it bounces upward from here.

  • Avg. Volume:    950,680
  • Market Cap:    $405.483 million
  • YTD Return:      -16.80%
  • PE Ratio (TTM): 14.84
  • EPS (TTM):      0.05
  • 1y Target Est:   1.05

2. Entrée Gold Ltd. 

Entrée Gold Ltd. (EGI) engages in exploration and development in the United States, Mongolia, Peru, and Australia, though it is based in Vancouver, Canada. The company has been reporting negative net income, but it has been paring its losses the last five quarters.

This stock is not very liquid. Speculators who want to sell it could find it difficult to find a quick buyer when the time comes.

EGI broke sharply upward at the start of 2017, and held on to most of its gains that year, adding nearly 100% for 2017. However, the stock has stumbled in 2018, along with the price of the precious metal and still trades at well under $1.00 per share.

  • Avg. Volume:    63,909
  • Market Cap:   $74.658 million
  • YTD Return:      -28.33%
  • PE Ratio (TTM): N/A
  • EPS (TTM):      -0.01
  • 1y Target Est:   0.79

3. Paramount Gold Nevada Corp.

After spiking in 2016 and 2017, Paramount Gold Nevada (PZG) has been volatile in 2018, edging up to $1.63 per share in late April and closing at $1.01 on September 10, 2018. Currently, the stock stands at $1.11 per share, as of the close on October 12, 2018. Investors will need to decide if they think the stock has bottomed or is still at risk. However, if gold prices rise, PZG could benefit. It focuses on Nevada gold. The company has staying power. It has been in business since 1992. Paramount Gold makes the list due to its longevity and its ability to profit from rising gold prices.

  • Avg. Volume:    35,280
  • Market Cap:    $28.277 million
  • YTD Return:      -14.61%
  • PE Ratio (TTM): N/A
  • EPS (TTM):      -0.28
  • 1y Target Est:   3.05

4. Gold Reserve Inc.

Gold Reserve Inc. (OTC: GDRZF) buys, explores and develops mineral properties, and currently owns property in Bolivar State, Venezuela. It was founded in 1956 and is presently based in Spokane, WA. The stock is trading under $3.00 per share, as of October 12, 2018. We are counting any stock under $5 as a penny stock.

The stock moved higher through the end of 2017, where it peaked at over $4 per share. But it has slipped again over the first nine months of 2018. As of October 12, 2018, the stock stands at $2.42. However, longer-term, Gold Reserve is in a position to benefit from rising gold prices. The company has been in business since 1998. 

  • Avg. Volume:    15,500
  • Market Cap:    $261.409 million
  • YTD Return:      -20.06%
  • PE Ratio (TTM): 2.73
  • EPS (TTM):      0.96
  • 1y Target Est:   0.75

The Bottom Line

These penny stocks usually follow the price of gold unless there is mismanagement or an unforeseen event that hurts one of them. When considering these stocks, perform as much due diligence as possible and keep a close watch on the trend in gold prices. Penny gold stocks are very high risk, so investors should be slow to buy and quick to sell.