NEW YORK (MarketWatch) -- Gold futures rallied Wednesday, propelled by sharp weakness in the U.S. dollar, which fell to a new low against the euro.

Gold for June delivery rose $16.30 to end at $948.30 an ounce on the New York Mercantile Exchange.

Other metals prices also posted strong gains.

"The drop in the U.S. dollar overnight is giving the bulls the upper hand today," said Burton Schlichter, director of trading at New World Trading.

"Also, the move was technically driven when gold traded over $940 an ounce," he said.

The dollar remained under pressure against most major counterparts, notching a fresh low against the euro after mixed U.S. economic data. The euro was changing hands at $1.5957, after rising as high as $1.5977, according to FactSet Research data.

“ 'The drop in the U.S. dollar overnight is giving the bulls the upper hand today.' ” — Burton Schlichter, New World Trading

The dollar index, which tracks the performance of the greenback against a basket of other major currencies, fell 1% to 71.30. See Currencies.

In economic news, the Commerce Department reported Wednesday that U.S. home builders started the fewest homes in 17 years, as housing starts plunged 11.9% to a seasonally adjusted annual rate of 947,000 in March.

March's rate was the lowest for housing starts since March 1991. Starts were down 36.5% compared with March 2007. The starts figure was much lower than expected on Wall Street, where economists were looking for a drop to 988,000 annualized units. See Economic Report.

Separately, the Labor Department reported that inflation rose in March, as energy and food costs gained. After virtually no change in February, the consumer price index in March rose 0.3%, matching estimates from analysts surveyed by MarketWatch. Read more.

On Tuesday, gold ended up $3.30, or 0.4%, to $932 an ounce.

"With oil and commodities surging, the dollar continuing to weaken and economic growth slowing, gold's best friend stagflation is a real and growing threat to much of the global economy," said Mark O'Byrne, executive director at Gold and Silver Investments Ltd., in a research note.

The precious metal will likely challenge recent resistance at $950 in the coming days "as investors realize that inflation is not some short-term phenomenon, but rather a medium and possibly long-term problem yet to be priced into the market," O'Byrne said.

Crude-oil futures rose more than $1 to surpass $115 a barrel after data showed a surprising drop in U.S. crude inventories and as the dollar dipped anew, raising oil's attraction as an investment alternative.

Crude oil for May delivery rose to an intraday high of $115.07 a barrel in late afternoon trading, before closing up $1.14, or 1%, at $114.93 on the New York Mercantile Exchange, also a new closing record. See Futures Movers.

"Weak dollar, stronger gold and stronger crude are really the tones today," said Zachary Oxman, a senior trader at Wisdom Financial.

"I'd anticipate further buying into all things commodity led by crude right now," Oxman said.

Also on the Nymex, May silver futures rallied 47 cents to end at $18.32 an ounce and July platinum futures rose $50.90 at $2,037.30 an ounce. June palladium gained $6.25 at $460 an ounce.

May copper futures surged 10 cents to end at $3.96 a pound.

On the equities side, the Amex Gold Bugs Index HUI, soared 5.2% to 475.16 points.