Things could finally be looking up for ASX gold shares after a top broker upgraded the sector.
This could help explain why these ASX miners have outperformed the S&P/ASX 200 Index (ASX: XJO) on Monday.
The Northern Star Resources Ltd (ASX: NST) share price and Evolution Mining Ltd (ASX: EVN) share price jumped more than 3% each.
The Newcrest Mining Ltd (ASX: NCM) was the relative laggard as it "only" increased by 1.9% to $24.45. But investors won't be complaining as that's still well ahead of the 0.3% gain by the ASX 200.
Outlook for ASX gold shares improves on upgrades
There could be more gains ahead too as worries about further big falls in the gold price are assuaged.
The analysts at Macquarie Group Ltd (ASX: MQG) have upgraded their short- and medium-term gold price forecast. This is in light of their revised 10-year yield forecast for US government bonds.
Broker sees limited downside for gold price
The broker is expecting the gold price to average US$1,750 an ounce in the 2021 December quarter. That's around a 4% increase in Macquarie's previous CY21 forecasts.
The precious metal is currently trading just under US$1,800 an ounce, so the downside appears limited for this year.
The news will be a relief for gold investors. Since the price of the commodity tumbled from its record peak of around US$2,067 an ounce in August last year, investors have dumped ASX gold shares.
Why the gold price may not fall much further
The fear was that rising US government bond yields will diminish the appeal of gold. Both assets are regarded as safe-haven investments, but one doesn't pay a distribution.
Hence, as the COVID-19 economic recovery takes hold, bond yields will rise. This makes buying US government bonds a more attractive proposition to gold.
But the delta variant of the virus is dampening the recovery outlook for the global economy. This is prompting some to question if US government bond yields can rise as much as earlier forecast.
ASX gold shares enjoying an upgrade
These doubts are a boon for ASX gold shares. And given that most of these miners have crashed into a bear market, which is a peak-to-trough fall of 20% or more, the sector could be fertile ground for bargain hunters.
This may be particularly so as Macquarie has upgraded its recommendation on the Newcrest share price to "outperform".
The broker's 12-month price target on Australia's largest gold miner was increased by 7% to $29 a share.
Macquarie also upgraded its rating on the Evolution Mining share price to "neutral" from "underperform". The price target for Evolution Mining was lifted by 3% to $4 a share.
Best ASX gold shares to buy now
The broker's top pick for the sector is Northern Star. Macquarie reiterated its buy call on the shares and boosted the price target by 8% to $14 a share.
Macquarie is expecting the gold price to average US$1,625 an ounce in 2022 before bottom around US$1,500 the year after.
