Gold miners experienced a significant surge, with the VanEck Gold Miners ETF reaching its highest level since April 2022, as gold prices broke all-time records on Tuesday. The precious metal soared above $2,460 per ounce, showcasing a robust 1.7% gain for the session. This remarkable rally was largely driven by heightened investor convictions that the Federal Reserve will cut interest rates at its September meeting.

Federal Reserve Chair Jerome Powell's recent remarks during an interview at the Economic Club of Washington on Monday significantly boosted expectations for a rate cut. Powell confidently welcomed the latest inflation reports for the second quarter, stating, "We've had now three better readings. And if you average them, it's a pretty good pace." Powell hinted that the Fed would be willing to lower interest rates if labor market conditions unexpectedly weaken.

Traders have fully priced in a rate cut at the September meeting, according to the CME Group's FedWatch tool, with a 93.3% probability of a 25-basis-point cut and a marginal 6.7% chance of a larger 50-basis-point cut. This sentiment was reflected in the 7-basis-point drop in yields on the 10-year Treasury note, which closed at 4.16%, the lowest since mid-March.

The rise in gold prices and the reduction in Treasury yields spurred a rally in gold mining stocks, leading to a significant surge in the VanEck Gold Miners ETF. The ETF soared by 3.3% on Tuesday, marking its highest level since April 21, 2022, and extending its rally since February 2024 to an impressive 55%.

Bank of America analyst Lawson Winder predicts strong earnings for gold miners and suggests an increased focus on capital allocation in the sector. Winder speculates that mining companies may consider increasing dividends or engaging in share buybacks to enhance stock value. He emphasizes the importance of second-quarter guidance updates, noting that positive guidance can lead to substantial outperformance. Winder also anticipates a focus on organic production growth and potential acquisitions, given the slowdown in corporate acquisition activity and the availability of assets following Newmont Corp. NEM's acquisition of Newcrest Mining.

The rally in gold miners on Tuesday showcased the investors' confidence in the anticipated rate cut and the robust performance of gold prices, with the sector poised for further growth. The upcoming September meeting of the Federal Reserve will undoubtedly be closely watched by the market, as it holds the potential to shape the future course of gold mining stocks and the broader market.