Gold's appeal is fading as slumping commodity prices reduce the appeal of the precious metal as a hedge against inflation.

The percentage of traders expecting a drop in prices has increased to 46 percent, the most since July, based on a survey of 39 traders, investors and analysts from Sydney to Chicago contacted by Bloomberg News on Oct. 5 and 6. The percentage was 6.5 percent a week earlier. Seventeen respondents, or 44 percent, said to buy gold this week, and five were neutral.

Gold has plunged 21 percent from a 26-year high of $732 an ounce on May 12 on signs that two years of interest-rate increases by the Federal Reserve will slow growth and curb inflation. The Reuters/Jefferies CRB Commodity Price Index fell to a 16-month low last week, led by crude oil, sugar and copper.

``Oil prices should continue to ease in the short term and that would weigh on gold,'' said Mark Pervan, head of research at Daiwa Securities SMBC in Melbourne.

Gold futures for December delivery fell $27.40, or 4.5 percent, to $576.80 an ounce in New York last week on the Comex division of the New York Mercantile Exchange. Prices touched $563.50 on Oct. 4, the lowest since June 15. The decline surprised the majority of analysts surveyed Sept. 28 and Sept. 29, who expected a gain. The Bloomberg survey has forecast prices accurately in 77 of 128 weeks, or 60 percent of the time.

Commodity Slump

The CRB index of 19 commodities had its biggest quarterly decline in 50 years during the three months ended Sept. 30 and is down 18 percent from a record on May 11, halting a rally that began in October 2001. The CRB fell 1.8 percent last week to 300.20, after reaching 292.72, the lowest since May 20, 2005.

Commodities may extend their slump next week. Copper may fall as a slowdown in U.S. housing demand curbs consumption by the world's second-largest user of the metal, according to a separate Bloomberg survey. Corn prices may decline for the first time in three weeks and soybeans may drop as farmers harvest a record crop, another survey showed.

``The gold market is rapidly approaching the bottom,'' said James Steel, a metals analyst at HSBC Securities (USA) Inc. in New York. ``I don't think the run in oil is over yet. There's plenty of oil in the market. It's too early to tell if the commodities sell-off is over.''

Oil Declines

Oil has declined 24 percent from a record $78.40 a barrel on July 14 as tensions in the Middle East eased and fuel stockpiles increased. Nigeria and Venezuela said Sept. 29 they will curtail a total of 170,000 barrels a day of supplies to prop up prices.

Members of the Organization of Petroleum Exporting Countries including Saudi Arabia, Libya, Algeria, Kuwait and Iran may also cut, OPEC President Edmund Daukoru said Oct. 5.

``Even OPEC's cut production may not be sufficient enough to stem the decline in oil price,'' said Ellison Chu, manager of precious metals at Standard Bank Asia Ltd. ``We have a chance to test $550'' for gold in the next week or two, Chu said.

U.S. supplies of crude oil, gasoline, heating oil, diesel and natural gas are above the five-year average, the Energy Department said last week. The price of oil fell 5 percent last week to $59.76 a barrel on the Nymex, the biggest drop since March.

Some investors buy gold to preserve purchasing power when inflation accelerates. Gold futures surged to $873 in 1980, when a jump in the cost of oil led to a 13 percent annual rise in U.S. consumer prices.

Money Flows Out

``Gold continues to look defensive and the metal is not seeing the needed money flow from the funds,'' said William O'Neill, a partner at commodity research firm Logic Advisors LLC in Upper Saddle River, New Jersey. ``The recent steady dollar and seemingly tame inflation are negatives, and the slide in oil has been a major factor.''

The U.S. consumer-price index probably fell 0.2 percent in September following August's 0.2 percent gain, according to 14 economists in a Bloomberg survey. Prices rose 0.4 percent in July, supporting Federal Reserve Chairman Ben S. Bernanke's view that inflation will moderate. The Labor Department is scheduled to release the report on Oct. 18.

Hedge-fund managers and other large speculators decreased their net-long position in Comex gold futures in the week ended Oct. 3 to the lowest in more than a year, U.S. Commodity Futures Trading Commission data show.

Speculator Holdings

Speculative long positions, or bets prices will rise, outnumbered short positions by 69,434 contracts, down 2.5 percent from a week earlier and the fewest since Aug. 2.

``Demand is low as there is a perception the prices could fall further,'' said Kishore Narne, head of research at Anand Rathi Commodities Ltd. in Mumbai. ``Funds continue to liquidate their positions.''

Gold investors also may seek better returns in the stock market. The metal has slumped 10 percent the past month, compared with a 3.8 percent gain in the Standard and Poor's 500 Index.