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TOKYO - Gold retreated on Tuesday as investors took profits after the precious metal rose to its highest level in 28 years the previous day, lifted by record-high oil and a weak dollar, while silver hit an 8-month high.

However, the dip in the wake of oil's slide from its latest record highs, was seen as a brief pause in gold's upward march towards the $800-an-ounce mark.

Spot gold fell to $782.00 an ounce, down about 1.6 percent from a peak of $794.40 on Monday -- its highest price since January 1980.

It later inched up to trade at $783.30/784.10 at 2:47 a.m. EDT.

"I think there were also some position adjustments ahead of the Fed meeting," said Koji Suzuki, market analyst at Kazaka Commodity Co Ltd.

The Federal Reserve is widely seen cutting rates by a quarter point to 4.5 percent on Wednesday to prevent the U.S. economy from sustaining broader damage from deterioration in the housing sector.

Expectations that U.S. rates are heading lower have weighed on the dollar and some traders attributed its slight rise from recent record lows to a Wall Street Journal report on Tuesday that said a Fed cut this week was by no means certain.

Despite the dip in oil prices traders remained bullish in their long-term outlook for the precious metal, often bought as a hedge against inflation.

Oil prices fell nearly 1 percent to below $93 a barrel on Tuesday, retreating from their latest record high as investors took profits from a rally sparked by a Mexican supply outage.

"Yes, oil is down from its high ... but even if the price fell by as much as $15 that's still well over $70 and investors are going to chose to buy gold rather than some other dollar-based asset," Suzuki said.