July 18 (Bloomberg) -- Gold fell for the third session in four as the cost of oil and other forms of energy declined, reducing the appeal of precious metals as a hedge against inflation.

Gold has fallen three straight weeks since reaching a three- month high on June 23, when crude oil was headed for a record high above $60 a barrel. Oil fell to a two-week low today, on speculation that higher-than-average U.S. inventories will compensate for disruptions to output in the Gulf of Mexico, where hurricanes have led to rig evacuations and shutdowns.

``The weakness we're seeing in energy markets could cause gold to reverse,'' said Daniel Vaught, an analyst at A.G. Edwards & Sons Inc. in St. Louis. ``People view gold as an inflationary hedge. A lot of folks believe rising energy prices cause inflationary pressures.''

Gold futures for August delivery fell 30 cents to $421.10 on the Comex division of the New York Mercantile Exchange. Prices dropped 0.6 percent last week. A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.

Crude oil for August delivery fell as much as $1.29, or 2.2 percent, to $56.80 a barrel on the New York Mercantile Exchange. U.S. inventories of oil were 7 percent higher than their five- year seasonal average in the week ended July 8, the Energy Department said.

Gold rose earlier as the euro gained against the dollar, after a European Union report showed inflation in the region accelerated last month, damping speculation that policy makers will lower interest rates. Gold has dropped 3.9 percent this year as the dollar gained 11 percent against the euro.

Gold's correlation to the euro began to diverge after voters in France and the Netherlands rejected referendums on a European Union constitution last month. The metal posted annual gains the past three years, partly because the euro reached a record against the U.S. currency.

To contact the reporter on this story: Jennifer Itzenson in New York at jitzenson@bloomberg.net.

Last Updated: July 18, 2005 14:06 EDT