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.

Investec Australia pegged support at $771 an ounce and resistance at $795 an ounce.

The benchmark October 2008 gold futures on the Tokyo Commodity Exchange finished down 27 yen per gram, or 0.9 percent, at 2,911 yen.

Spot silver hit an intraday high of $14.51 an ounce on fund buying, its best level since late February, as it caught up with gold's gains.

It later dipped to $14.35/14.39, down from late New York levels of $14.39/14.44.

In the currency market, the euro fell 0.1 percent from late U.S. trade to $1.4404 , off a record peak of $1.4439 hit on trading platform EBS on Monday, the highest since its launch in 1999.

The dollar eased 0.2 percent to 114.43 yen but was above a six-week low of 113.25 yen.

The most-active December gold contract on the COMEX division of the New York Mercantile Exchange slipped $4.4 ounce to $788.2 in electronic trade.

In industry news, Papua New Guinea miner Lihir Gold Ltd cut its 2007 production forecast by about 6 percent on Tuesday, after strike action reduced its third-quarter output to 157,000 ounces of gold.

It said output for calendar 2007 was expected at about 750,000 ounces.

Meanwhile the New York Mercantile Exchange said the open interest levels of its gold futures breached 500,000 contracts to reach a new record high.

Platinum fell to $1,442/1,447 an ounce from $1,454/1,458 late in New York on Monday, when it hit a record high of $1,465.

Palladium also eased to at $368/372 from $371/375.