NEW YORK (MarketWatch) -- Gold futures rallied Wednesday, as the U.S. dollar extended its recent weakness against other major currencies, boosting safe-haven demand for the precious metal. Gold for February delivery rose $25.80 to end at $868.50 an ounce on the New York Mercantile Exchange. Earlier, the contract soared to an intraday high of $883.60 on Globex. "It seems to me that a slight to safety play is building into gold," said Zachary Oxman, a senior trader at Wisdom Financial. "The dollar is again spiraling downward and in this deflationary environment, people are looking for safety and a store of value," Oxman said. "I think gold will continue to appreciate in the near term and probably slow after the first of the year." The $910 to $920 level is a key resistance area, Oxman said. This week, gold has surged $48 since last Friday's closing level of $820.50. The greenback remained under pressure Wednesday, a day after the Federal Reserve decided to cut interest rates to historic lows and expand a program of extraordinary lending and other measures to attempt to lift the U.S. economy out of recession. See Currencies. The dollar index a measure of the U.S. dollar against a trade-weighted basket of six currencies, fell 1.3% to 78.96, down from 79.921 in North American activity late Tuesday. "Note how rising risk aversion continues to fail in propping the dollar as was the case since the beginning of the market turmoil," said Ashraf Laidi, chief market strategist at CMC Markets. "Considering the Fed's yield assault on the dollar, foreign exchange traders are no longer focusing on the woes of a bankrupt U.S. auto industry," Laidi said in a note. On Tuesday, gold ended up $6.20, or 0.7%, at $842.70 an ounce on the New York Mercantile Exchange. After the close of gold trading Tuesday, the Federal Reserve established its target range for the federal funds rate of 0 to 0.25%, effectively cutting its key rate for overnight lending to banks by between 0.75% and 1%. "The Federal Reserve has embraced 'Helicopter Bernanke's' inflate or die massive reserve and money creation academic theories in an attempt to prevent deflation," said Mark O'Byrne, executive director at Gold and Silver Investments Ltd., referring to Fed Chairman Ben Bernanke. "Markets realize that this will lead to a lower dollar and higher gold prices in the medium and long term," O'Byrne said in a research note. Also on the Nymex, March silver futures rallied 71 cents, or nearly 7%, to end at $11.42 an ounce and January platinum futures rose $15.70 to end at $865.20 an ounce. March palladium futures finished almost unchanged at $177.60 an ounce compared with a closing level of $177.55 an ounce on Tuesday. March copper futures ended down 1 cent at $1.37 a pound. Elsewhere in the commodity markets, crude futures fell sharply Wednesday, paying little heed to a widely expected production cut of 2.2 million barrels in current oil output by the Organization of Petroleum Exporting Countries. On the equities side, the Amex Gold Bugs Index which tracks the share prices of major gold companies, fell 1.5%. The SPDR Gold Trust the largest gold exchange-traded fund, gained 1.2%.

Source