Moody’s Investors Service has lowered its forecasts for gold and silver prices, citing the improving global economy and restrained inflation.

The rating agency announced today that it has reduced its view on the average price of gold and silver in 2014 and beyond to US$1,100/oz and US$18/oz, respectively. It previously assumed the price of gold and silver would average US$1,200/oz and US$20/oz over the next couple of years.

Moody’s says that these lower price expectations “reflect significant deterioration” in the spot prices of both metals, 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.”

The revised forecasts will be used when analyzing the credit condition of gold and silver producers. And, it hints that companies may face credit rating actions in light of lower price prospects. Moody’s says that the increasing risk of lower prices “suggests that key credit metrics of certain producers are stretched for current ratings in the absence of mitigation through cost reductions or other actions.” Moody’s says it will evaluate the impact of lower prices for each company individually over the coming months.

“Operating costs for gold producers increased significantly over the past several years as mining companies chased new production in response to rising prices. Costs rose, in part, as producers mined lower-grade ore (which is economic to mine at higher prices), but producers also saw significant increases in other key cost inputs, including wages, power, consumables, exploration, environmental spending requirements and government royalties,” it notes.

Moody’s says it believes the industry’s all-in average cost of gold production is currently at least $1,100/oz, comprised of about $850/oz of cash operating costs and a minimum of $250/oz of sustaining capital costs. However, it notes that precious metal producers have been implementing significant cost reductions in response to lower prices.

“They are focusing their operations on higher-grade ore, idling higher-cost mines, reducing the number of workers and corporate overhead, scaling back exploration spending, and postponing or slowing growth projects,” it says. “While the industry’s retreat from growth will inevitably cause production to fall, it will also yield benefits, such as making equipment less expensive and consumables more readily available.”