The expected unwinding of US quantitative easing and expecta- tions of improving but “unspectacular” economic growth leave little room for a rebound in gold prices over the next few years, while a further decline remains a real possibility, Fitch Ratings said last week, sending North American gold stocks into negative territory.

The agency said its ratings of gold producers incorpo- rated a base case gold price assumption of $1 200/oz for the next two years, but a stress scenario of $1 000/oz would put some gold miners’ ratings under significant pressure with- out substantial cost cutting and cash conservation measures.

The base case price was in line with the industry’s “all-in-sustaining” cost guidance for 2013, the firm said, adding that, however, it did not see $1 200/oz as a price floor, owing to recent price trends having been influenced far more by the use of gold as a financial instrument and a hedge against inflation than by industrial demand.

“Given the change in sentiment as central banks signal unwinding of eco- nomic stimulus, we recognise it is possible that the gold price could find a new floor below this level for an extended period,” Fitch analysts said.

The gold price has settled above $1 300/oz in recent weeks, having fallen sharply from the start of the year, hitting a near three-year low at about $1 180/oz in late June. This is prompting miners across the globe to cut spending, adjust plans and defer or divest projects as they struggle to adapt to a low-price environment.

Metals consultancy Thomson Reuters GFMS also last month said it expected gold prices to contract further in 2014. The consultancy expected prices to average $1 350/oz next year, down 7% from $1 446/oz in 2013, with support seen between $1 200/oz and $1 250/oz.

Fitch said it had reviewed its portfolio of gold pro- ducers following the recent sharp drop in prices, but had not taken any rating actions because it believed that, under its base case, companies had sufficient flexibility to reduce their operating cost base and capital expenditure plans. It also expected gold producers to reassess their dividend policies.

“The $1 000/oz stress case is not used to determine ratings, but is a useful tool to assess the flexibility com- panies would have amid persistent weaker prices,” the firm said.

Fitch said rising leverage would be inevitable in this scenario with Kinross Gold (BBB-) and Nord Gold (BB-) showing peaks in 2014. Buenaventura (BBB) peaks in 2015 owing to its projected investment in affiliates and brownfield expansion projects under this price scenario.
Polyus Gold (BBB-) would probably remain the least leveraged Fitch-rated gold miner, but it would also probably see the biggest impact on earnings before interest, taxes, depreciation and amortisation, owing to the location of its production assets in regions of Russia with poor infrastructure and severe climate conditions, which would limit the potential for additional cost savings, Fitch said.

TSX-listed Barrick, which last week closed down 2.87% at C$18.63, had cut its last dividend to $0.05 from $0.20 a share, and Kinross, which closed down 2.12% at C$5.08 a share, recently suspended its dividend. Gold Fields, which closed down 2.63% at $4.45 on the NYSE, had in August said it would not declare an interim dividend.

Several other TSX-listed gold miners also closed lower, including Osisko Gold losing 3.84% to C$5.01 a share, Goldcorp losing 2.61% to C$26.10 a share, Iamgold losing 2.24% to C$4.81 a share and Yamana Gold losing 2.66% to close at C$10.425 a share.