The image isn't "gay" per se, but it definitely has homoerotic undertones, of which I'm sure Morrissey is very aware. A photograph doesn't need to depict male/male sexual activity in order for it to have homoerotic value. A lot of people mistakenly conflate homosexuality with homoeroticism, but they aren't necessarily interchangeable terms and the distinction is an important one, particularly when it pertains to art. Homoeroticism as an aesthetic form is often about perception and representation, whereas homosexuality or "gayness" relates to a characteristic of being.
Take, for example, the sleeve art of Hand in Glove. Few people would deny the homoeroticism inherent in that image, but why is that? It has to do with the way the male body is presented as an object of desire, something to be looked at, objectified in a manner much more typically associated with media representations of women. We are socialized to view the subject in a sexualized way. Feminists would call this a product of the "male gaze," or perhaps more accurately where this photo is concerned, a subversion of it. If the majority of images in films, television programs, advertisements etc. that we're bombarded with are ostensibly created for the attention and benefit of men, when a man is depicted as an object to be looked at, then the image becomes suspect and the homoerotic connotation becomes apparent, if only on a subconscious level.
The Fitzgerald photo is less obviously homoerotic than the Hand in Glove sleeve, but can easily and understandably be read as such. The homosocial interaction, the way the young men are posed--especially the shirtless kid with his rugged masculinity on display, almost looking at the camera but not quite, drawing the viewer in.