Moody's drops gold price assumption to $1,100 an ounce

A major ratings agency says the credit worthiness of several Canadian miners is under threat as it lowers its forecast of where it expects gold prices to be for the next several years to $1,110 US an ounce.

Moody's hasreduced its assumption for the average price of gold and silver in 2014 and beyond to $1,100/oz and $18/oz, respectively. Both figures are about10 per cent below previous expectations.

After peaking at over $1800 an ounce in 2012, gold prices have steadily declined, with the spot price dropping by 30 per cent last year alone. Gold miners spent heavily seeking out new production when prices were high, and are now saddled with high costs for those projects even as their revenue declines because of the lower price.

"These lower price expectations reflect significant deterioration and fundamentals that seem unfavourable over the next couple of years as the global economy maintains forward momentum, governments unwind various stimulus programs, and the threat of inflation remains subdued in most major economies," Moody's said.

Canada's major gold miners, including Barrick,Goldcorp, Kinross and Yamana Gold, all currently have "investment grade" credit ratings according to Moody's.

Moody's earns money by examining the books of other companies, and assessing how likely they are to pay back their debts. Companies that Moody's deem to be in sound financial shape get a good credit rating which makes investors more willing to lend them money at lower rates, because they're perceived to be safer bets.

A credit downgrade can sometimes snowball into more bad news for companies, as their finances decline to the point where they have to offer higher rates of return. That can causetheir finances to deteriorate even more.

Gold was trading at $1,225 an ounce on Tuesday, off slightly on the day.