Sept. 2 (Bloomberg) -- Crude oil and gold led a decline in commodities in London as Hurricane Gustav spared the U.S. Gulf states the destruction caused by Katrina and Rita in 2005.

The S&P GSCI index of 24 commodity futures has dropped as much as 7 percent in two days, to the lowest since April 2. Oil is trading at a five-month low, 27 percent below the record $147.27 a barrel reached July 11.

``Oil is the driver of today's declines in commodities, reflecting the lack of appetite from investors,'' Frederic Lasserre, head of commodities research at Societe Generale, said today by phone from Paris.

Lower commodity prices may help ease inflation, which in the euro zone dropped to 3.8 percent last month, from 4 percent. The World Bank expects global growth to slow to 2.7 percent this year, from 3.7 percent in 2007.

Crude oil for October delivery fell as low as $105.46 a barrel on the New York Mercantile Exchange, 8.7 percent less than on Aug. 29. Today's trading is combined with yesterday's for settlement purposes because of the Labor Day holiday in the U.S.

Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached. All of the area's 1.3 million barrels a day of oil and 7.06 billion cubic feet of gas, 95 percent of the total, was shut. Royal Dutch Shell Plc, Total SA and ConocoPhillips said they were inspecting offshore U.S. Gulf platforms today.

``The absence of serious structural damage from Gustav when the market was braced for the worst has caused prices to turn decisively downwards,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London.

Gold Declines

Gold for immediate delivery fell as much as $16.28, or 2 percent, to $801.42 an ounce, the biggest decline since Aug. 19. Gold dropped as lower oil prices diminished the appeal of the metal as a hedge against inflation.

Commodities also declined as the dollar strengthened against currencies including the euro. Most commodities are priced in dollars and some investors buy them as a hedge against further weakness in the U.S. currency.

``In the short term, gold's direction will be determined by the moves in crude oil and -- barring currently unapparent damage to Gulf of Mexico production facilities or local refining operations -- the downside appears vulnerable,'' John Reade, the head of metals strategy at UBS AG in London, wrote in a report.

On the London Metal Exchange, copper for delivery in three month fell as much as 2.4 percent to $7,128 a metric ton, the lowest intraday price since Aug. 12. Stockpiles of the metal tracked by the bourse rose 3.5 percent to 179,800 tons, the highest since Jan. 21, indicating slower demand growth.

Supply Speculation

Zinc dropped for a second day on speculation supplies from mines will expand faster than demand into next year. The metal dropped $35, or 2 percent, to $1,745 a ton.

Yunnan Chihong Zinc & Germanium Co., China's fifth-biggest zinc producer, said it wasn't affected by the Aug. 30 earthquake in Sichuan province and Nyrstar NV, the world's largest zinc producer, said its U.S. smelter in Tennessee is unaffected by Hurricane Gustav.

``The main problem with zinc is a perception of oversupply,'' said Dan Smith, a metals analyst at Standard Chartered Plc in London.

Corn for December delivery fell as much as 30 cents, or 5.1 percent, to $5.55 a bushel, the lowest since Aug. 18, in after- hours electronic trading on the Chicago Board of Trade. Soybeans also slumped.

``The sharp drop in crude prices is the driving factor behind the weakness in grains markets today,'' Toby Hassall, an analyst at Commodity Warrants Australia in Sydney, said by e- mail. ``The impact of Gustav was far less traumatic to the Gulf coastline than many had expected. The fear premium that had been built into crude prices was hastily wiped away.''

Robusta coffee for November delivery, the most actively traded contract, fell as much as $26, or 1.2 percent, to $2,221 a ton on the Liffe exchange in London.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net

Last Updated: September 2, 2008 06:44 EDT