By Pham-Duy Nguyen (Bloomberg) 

Gold rose, heading for the biggest annual gain since 1979, as a decline in the dollar boosted the appeal of the precious metal as an alternative investment. Silver also climbed.

Gold has jumped 32 percent this year as a weaker U.S. currency, record energy costs and continuing conflict in the Middle East sparked demand for the metal. Investment in the StreetTracks Gold Trust, an exchange-traded fund backed by bullion, surged 39 percent to a record 628 metric tons.

"One would be hard-pressed to find a reason for gold not to continue to rally at this point,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

Gold futures for February delivery rose $10.90, or 1.3 percent, to $842.70 an ounce on the Comex division of the New York Mercantile Exchange. The metal gained 3.3 percent this week.

Lower borrowing costs have hurt the dollar this year. The U.S. currency dropped against the euro for a sixth straight day on concerns a slowing economy will force the Federal Reserve to cut interest rates again.

"We expect this monetary environment, one in which central banks around the world are cutting interest rates and injecting liquidity, to remain very bullish for commodities,'' said Chip Hanlon, president of Delta Global Advisors Inc. in Huntington Beach, California, which manages about $1.2 billion. The firm predicts gold will reach $925 in 2008.

The Fed lowered the benchmark lending rate 1 percentage point to 4.25 percent this year, sending the dollar in late November to $1.4967 against the euro, the lowest ever. Five of the past six bear markets in the dollar have rallied gold.

Longest Rally

Gold also rose on demand for a hedge against accelerating consumer prices. Crude oil rose as much as 1.4 percent today to $97.92 a barrel after reaching a record $99.29 on Nov. 21. Oil is up 59 percent this year.

Gold is headed for the seventh straight annual gain, the longest rally since futures began trading in 1975. Futures reached a 27-year high of $848 on Nov. 7.

In 1979, gold more than doubled after the Shah of Iran was overthrown, energy costs surged and the dollar slumped. The spot price of the metal climbed to a record $850 on Jan. 21, 1980, and futures reached $873.

Silver trailed gold this year on speculation that slowing global economic growth will hurt demand for base metals. Silver, which has wider industrial applications than gold, has gained 15 percent in 2007. Last year, silver rose 46 percent, while gold gained 23 percent.

Silver futures for March delivery rose 7.7 cents, or 0.5 percent, to $14.895 an ounce.