Gold in New York tumbled the most in three months as plunging energy costs reduced the appeal of the precious metal as a hedge against inflation.

Gold is down 21 percent from a 26-year high of $732 an ounce on May 12, partly because the price of oil has dropped 24 percent from a record in July. Crude oil fell below $60 a barrel to a seven-month low on speculation fuel inventories are big enough to counter production cuts by Nigeria and Venezuela.

``Everybody is getting out of their positions,'' said Nick Ruggiero, a trader at Eagle Futures Inc. in New York. ``Crude came off almost $3 this week, and gold is following.''

Gold futures for December delivery fell $21.80, or 3.6 percent, to $581.50 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the biggest since June 13. Gold is still up 12 percent this year.

Some investors buy gold when energy expenses climb. Gold futures reached a record $873 an ounce in January 1980 when oil costs doubled in a year, sparking a surge in the inflation rate.

``With no sign of a turnaround in oil, gold is going to track it down further,'' said Frank McGhee, head metals trader at Integrated Brokerage Services Inc. in Chicago.

Losses accelerated after gold fell below $600.

``That was a big number,'' Ruggiero said. ``We had a lot of sell stops for long positions.''

Fewer Speculators

Hedge-fund managers and other large speculators decreased their net-long position in Comex gold futures in the week ended Sept. 26, Commodity Futures Trading Commission data showed on Sept.29.

Speculative long positions, or bets prices will rise, outnumbered short positions by 71,244 contracts. Net-long positions fell by 6,624 contracts, or 8.5 percent, from a week earlier to the lowest since August 2005, the data showed.

``All the funds are hitting the door at the same time,'' McGhee said.

Dennis Gartman, gold trader, economist and editor of the Suffolk, Virginia-based Gartman Letter, yesterday advised clients to reduce even their ``insurance'' position in gold.

``We moved to cut our insurance position in gold by half, given that the geopolitical situation seems almost daily to be less and less onerous,'' Gartman said in his report today. ``We fear that the rally of the last week was but another rally in a bear market and that it was wise to stand down.''

Slumping Quarter

Gold had gained as much as 39 percent this year on speculation that conflict over Iran's nuclear research program would cut oil supplies. The United Nations Security Council has yet to impose sanctions against Iran after an Aug. 31 deadline to suspend enrichment of uranium.

Gold fell 1.9 percent in the third quarter, the first drop since the first quarter of 2005. The Reuters/Jefferies CRB Index fell 12 percent, the biggest drop since at least 1956, data compiled by Bloomberg show.

Gold still may reach $700 this year and climb to the spot record of $850 next year as the dollar weakens, Citigroup Inc. analyst John H. Hill said in a report yesterday.

The end of the Federal Reserve's cycle of 17 interest rate increases in August ``may spark renewed bouts of dollar weakness,'' Hill said. ``Higher interest rates are a headwind for gold.''

Gold generally moves in the opposite direction of the dollar, which is down 6 percent this year against a basket of six major currencies.

Gold's recent decline is a correction within a bull market, said Phillips Baker, chief executive officer of Hecla Mining Co. in Coeur D'Alene, Idaho. The company mines gold and silver in the U.S., Mexico and Venezuela.

`Long-Term Bull Market'

``We're in a long-term bull market for gold,'' Baker said. ``You're going to have volatility. It's just the nature of the metals.''

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Silver for December delivery fell 59.5 cents, or 5.1 percent, to $11.045 an ounce. Palladium for December dropped $12.15 or 3.9 percent, to $302 an ounce. Platinum for January declined $35.20, or 3 percent, to $1,124 an ounce.

Silver may rebound faster than gold because of its industrial component, Baker said.

``Certainly, it has volatility, but it has a lot more upside than it does downside,'' Baker said. ``I could see another $5 or $10 in the price of silver.''