By Pham-Duy Nguyen (Bloomberg)

Gold futures rose as the dollar fell to a record against the euro. Silver also gained.

The dollar dropped on speculation that the Federal Reserve's plan to lend banks $200 billion in exchange for mortgage debt won't succeed in easing the credit crunch. Gold jumped 31 percent last year as the dollar fell 9.5 percent against the euro.

"Pessimism continues to manifest itself in the markets,'' said Jon Nadler, an analyst at Kitco Minerals & Metals Inc. in Montreal. "Dollar selling remains a relatively safe activity for speculators. Buying gold, therefore, remains safe as well for the moment.''

Gold futures for April delivery rose $4.50, or 0.5 percent, to $980.50 an ounce on the Comex division of the New York Mercantile Exchange. On March 5, the price reached $995.20, the highest ever for a most-active contract.

Silver futures for May delivery climbed 23.2 cents, or 1.2 percent, to $19.995 an ounce.

Gold has gained 17 percent this year, and silver was up 34 percent. The euro traded as high as $1.5526 today.

"What the Fed did yesterday, injecting more money into this system, is very inflationary,'' said Tom Hartmann, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. "Buy gold.''

The worst housing slump in 25 years and more than $181 billion of credit losses and writedowns at banks threaten the U.S. economy. Policy makers at the central bank have also cut the federal-funds rate five times since September. The benchmark rate is 3 percent, down from 5.25 percent.

"Printing money beyond the productive capacity of an economy always leads to higher prices,'' Michael Pento, a senior market strategist for Delta Global Advisors Inc. in Huntington Beach, California, said in a letter to clients yesterday. "It is clear why precious metals, energy and the dollar all point to higher inflation.''

Last year, gold rallied the most since 1979 as consumer prices accelerated at the fastest pace in 17 years.