Gold in New York rose to a one-week high on speculation the U.S. Federal Reserve may struggle to contain inflation after leaving interest rates unchanged, boosting the precious metal's appeal as a hedge against rising consumer prices.

Before today, gold had dropped 10 percent from a 26-year high of $732 an ounce on May 12, partly on speculation the Fed would continue to raise rates to combat inflation. The Fed yesterday kept its benchmark lending rate at 5.25 percent, pausing after 17 straight increases since June 2004.

``The worry is that the inflation will continue,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``That will help out the metals, including gold.''

Gold futures for December delivery climbed $4.70, or 0.7 percent, to $662 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier reached $666.50, the highest since Aug. 2. Prices are up 51 percent from a year ago.

Silver futures for September climbed 31 cents, or 2.5 percent, to $12.57 an ounce. Prices have jumped 79 percent in the past year.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

``Some inflation risks remain,'' the Fed said in a statement yesterday. The likelihood of further rate increases depends on the outlook for inflation and growth, the central bank said.

Signals on jobs and energy costs still indicate accelerating inflation, some metals analysts said. Labor costs in the first quarter rose the most since the end of 2004. Crude-oil prices have climbed above $77 a barrel this week on U.S. supply concerns.

``All the inflation data suggests it's still there,'' said Mike Armbruster, co-founder of Altavest Worldwide Trading Inc. in Mission Viejo, California. ``A dovish tone means the Fed has lost inflation-fighting credentials.''

Gold reached a record $873 an ounce in January 1980 after oil costs doubled in a year, sparking a surge in the inflation rate.

Gold also gained as the dollar weakened against the yen and euro. The metal generally moves in the opposite direction of the U.S. currency. Gold is up 28 percent this year, while the dollar has fallen 7 percent against a basket of six major currencies.

``The dollar is a lot weaker, and that helps gold a bit,'' said McNeill of R.F. Lafferty.