Metals Stocks: Gold prices edge up as traders wait for key jobs data

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Gold prices were inching higher Friday morning, ahead of an important report on the U.S. labor market that could help to cement the belief that the U.S. economy is slowing — setting up a bullish environment for bullion.

December gold GCZ19, -0.03% on Comex picked up $1.50, or 0.1%, at $1.515.30 an ounce, after the yellow metal gained 0.4% on Thursday, putting it on track for a fourth straight gain.

December silver SIZ19, -0.60%  gave up 4 cents, or 0.2%, at $17.64 an ounce, putting the metal on track for back-to-back losses.

For the week, silver is set for a weekly decline of 0.2%, while gold is set for weekly rise of 0.5%, according to FactSet data tracking the most-active contracts.

Analysts polled by MarketWatch anticipate a gain of 147,000 jobs for September, from 130,000 in the previous month when the U.S. Labor Department data are released at 8:30 a.m. Eastern Time. The unemployment rate is expected to hold steady at 3.7%, and average hourly earnings growth to tick up by 0.2%.

The nonfarm payroll report holds particular significance this Friday after recent economic data has come in at the weakest level in years. A survey on the service sector for September showed the weakest pace of growth in three years, dropping to 52.6% in September from 56.4%. That fueled haven demand for gold along with other lackluster reports, including one on manufacturing, underpinning doubts about U.S. economic stability in the face of slack economic slack abroad.

Market participants believe that a weaker-than-expected labor market report could encourage the Federal Reserve to deliver its third interest rate cut in as many meetings at the end of this month, which could support demand for precious metals as government bond yields have been in decline.

The 10-year Treasury note yielded TMUBMUSD10Y, +0.05% was down 0.7 basis point 1.531% late Thursday, with the 2-year Treasury yield TMUBMUSD02Y, +0.83% on pace for its steepest weekly yield skid since 2009, down 24.1 basis points to 1.384% as of late Thursday’s close, according to Dow Jones Market Data.

Lower yields can support buying of precious commodities because they don’t offer a coupon.

“Given the weakness in the economic numbers so far, traders have started to price in the possibility of another interest rate cut by the Fed,” said Naeem Aslam, chief markets analysts at Think Markets U.K. in a daily research note.

“As we said in our previous report that if the US ISM manufacturing and US ISM non-manufacturing number are dismal, market participants are going to look at the US NFP number through the Fed’s lens. What I mean is that investors are going to expect a reaction from the Fed,” he wrote.

Indeed, a lackluster jobs report may force the Federal Reserve to contemplate its third straight rate cut, even as the members of its rate-setting committee have been reluctant to tip their hand on the prospect of an October rate-cut. Fed Vice Chairman Richard Clarida in an interview with the Wall Street Journal said there was low chance of an economic recession in the U.S., despite the weak data that have emerged.