Gold records best day since March: Is the bottom in for ASX-listed gold miners?

Gold prices rallied overnight after weaker-than-expected US manufacturing data showed noticeable signs of falling inflation, which inspired a sharp decline in Treasury yields.

Gold is on a five-day winning streak after a brief stint to two-and-a-half year lows of US$1,614 last week. The bounce has inspired a broad-based rally for ASX-listed gold miners, with most mid-to-large cap names up 3-5% on Tuesday.

Notable gainers include:

• Gold Road Resources (ASX: GOR) +5.6%

• Northern Star (ASX: NST) +5.3%

• Newcrest Mining (ASX: NCM) +4.6%

Gold spot price (Source: TradingView)

Softening inflation hopes

The Institute for Supply Management (ISM) survey on Monday flagged that US manufacturing activity in September grew at its slowest pace since the early days of the pandemic.

Growth aside, the survey's Prices Index registered 51.7 last month from 53 in August. This was the index's lowest reading since June 2020.

"The Prices Index decreased for a sixth straight month and is not far from contraction territory," the ISM report said.

Why does this concern gold?

Gold has spiraled lower amid surging bond yields and a strong US dollar. It's been difficult for the non-interest bearing yellow metal to compete with now meaningful bond yields and the US dollar's safe haven status.

However, moderating inflation expectations marks a potential turning point for the Fed's aggressive path for interest rates. A less hawkish Fed would take some heat out of surging bond yields and the US dollar, which would in turn stabilise gold prices.

Last Friday, Macquarie released a note saying the Fed's pivot "from tightening to an easier policy presents a catalyst" for gold prices.

"The team expects gold prices to bottom once the market begins to price in a Fed pivot."

Too early to call

A hotter-than-expected US inflation report on 12 September erased the likelihood of a Fed pivot. Less than one month later, the market is back to day dreaming about a pivot.

"It is premature to say that the Fed is almost done with tightening, but it seems Wall Street is growing confident that they could be done in December," said Oanda senior market analyst, Ed Moya.

Strategists at TD Securities reiterated a bearish stance for gold, noting "the risk of capitulation remains prevalent for the yellow metal moving into October, with strong data continuing to point to a more aggressive Fed rate path ahead."

Gold is stuck playing the waiting game for the Fed to reach peak hawkishness. The overnight manufacturing data showed a glimmer of hope that prices are beginning to turn but more evidence is needed.