An Peugeot plant in Sochaux, France
An Peugeot plant in Sochaux, France. Manufacturing returned to growth in France, with a slightly stronger expansion than in July. Image Credit: Bloomberg

Frankfurt: Activity in the euro area’s private sector unexpectedly picked up, though a meaningful rebound remains out of sight.

IHS Markit’s composite Purchasing Managers’ Index (PMI) rose to 51.8 in August, indicating a slightly stronger expansion than in July. While manufacturing returned to growth in France, the outlook for Germany remained bleak, with orders falling the most in more than six years.

The euro area’s persistent sluggishness is damping optimism, and companies are preparing for the slump to last, according to the report. Industry in particular has faced a number of headwinds in the past year, including mounting global trade tensions and slowing demand from China.

“The lack of a quick rebound from the recent economic slowdown has impacted firms’ confidence, with sentiment the lowest in over six years,” said Chris Williamson, an economist at IHS Markit. “It appears that companies are braced for a sustained period of weakness, and as a result are showing greater reluctance to take on additional staff.”

After the 19-nation economy expanded 0.2 per cent in the second quarter, growth could slow further in the current period, according to the report. Germany, the region’s largest economy, faces the risk of falling into a recession should output contract again in the three months through September.

European Central Bank policymakers are three weeks away from their next meeting, and are widely expected to respond to the bleak economic prospects with the first interest-rate cut in more than three years.

But gold remains a big hit with institutional investors

Gold’s faring extremely well as a haven asset, with inflows into exchange-traded funds (ETFs) hitting 1,000 tonnes since holdings bottomed in early 2016 after a prolonged unwind in the wake of the global financial crisis.

Total known ETF holdings expanded to 2,424.9 tonnes on Wednesday, the highest since 2013, following inflows over the past three years and a continued build-up in 2019. Current assets are about 1,000 tons higher than the post financial crisis nadir of 1,425.1 tonnes.

Gold has surged this year as investors seek protection from slowing global growth, the incessant trade war, and turmoil in the bond market that suggests the US may be headed for another recession. The rise has been aided by a rate cut from the Federal Reserve and expectations more will soon follow.

This week, veteran investor Mark Mobius gave a blanket endorsement to buying bullion, saying accumulating the precious metal will reap long-term rewards.

Others are also bullish. Goldman Sachs Group Inc. has said prices will climb to $1,600 an ounce over the next six months.

The bank’s global head of commodities research, Jeffrey Currie, said that gains are likely be fuelled by demand for ETFs as well as increased central bank purchases. Spot gold traded at about $1,500 on Thursday, up 17 per cent this year.