Gold retreats from 28-year peak, weighed by oil drop

NEW YORK/LONDON (Reuters) - Gold pulled back from a 28-year high on Thursday, retracing just before the key $800 mark after a fall in oil prices and a recovery in the dollar.

Analysts said a period of consolidation would be healthy for the market and provide a solid base for a march towards a record high of $850 an ounce hit in January 1980.

Simon Weeks, head of metals trading at Bank of Nova Scotia, said gold rose in early trade on a knee-jerk reaction after the U.S. Federal Reserve's decision to cut rates, but later ran out of steam and there was not enough volume to justify high prices.

"Overall, I am sure it will happen but we just need to take a breather," he said, referring to gold's rise to $800. "With some people late to the party, I think that there are some longs to be squeezed out."

Gold hit a peak of $799.30 an ounce, its highest since January 1980, before falling to New York's last quote of $788.90/789.70 by 2:15 p.m. EDT, against $791.70/792.50 in New York late on Wednesday.

Bullion traded as high as $799.30 in Wednesday's after-hours trade on a surging crude and the dollar's fall.

Most-active December gold on the COMEX division of the New York Mercantile Exchange settled down $1.60 at $793.70 an ounce. It hit a session-low of $786.60.

Oil fell as much as $2 as investors cashed in on a new peak of $96 a barrel struck following a sharp fall in U.S. stocks and the U.S. Federal Reserve's interest rate cut the previous day.

The dollar climbed against the euro but fell versus the yen, hurt by declines in U.S. stocks. A fall in the U.S. equity market prompted investors to sell the dollar to buy the yen.

"But barring a rapid adjustment by the fundamental gold market, the metal looks set for a correction, although the timing of this is as impossible to predict as ever," said John Reade, head of metals strategist at UBS Investment Bank.

"With $800 very close and $850 very much in traders' gun sights, momentum may take us sharply higher in the near term, but this will only make the correction all the more devastating when it does occur," he said in a daily research note.

INFLATION CONCERNS

After adjusting for inflation, gold's lifetime high of $850 is equal to $2,079 an ounce at 2006 prices. Prices have jumped 25 percent since the latest rally began in mid-August.

But analysts remained convinced that the metal would hit new highs in the medium term.

Philip Klapwijk, chairman of metals consultancy GFMS, said inflation worries and a weak dollar were likely to push gold towards the record high of $850 in the first half of next year.

Meanwhile, fund managers and analysts said they expected the price of gold to rise further on inflation fears and a slumping dollar after U.S. gold futures breached $800 following the Federal Reserve's rate cut.

October 2008 Tokyo gold futures gained 2.3 percent to finish at 2,983 yen.

ANGLOGOLD MAY REDUCE HEDGES

In mining news, AngloGold Ashanti Ltd (ANGJ.J), the world's third-biggest gold producer, said it was reviewing its operations with a view to disposing of assets that do not add value, and might also "lighten" its hedge book.

The world's No. 1 gold producer Barrick Gold Corp's (ABX.TO) chief executive said he was still bullish on gold price, pointing to pinched supply and an environment of a weak-U.S. dollar and rising inflation that favors gold as a safe-haven investment.

In the United States, the White House on Thursday threaten to veto legislation that would impose federal royalties for the first time ever on gold, silver, copper and other minerals mined on public lands.

Silver XAG= fell to $14.16/14.21 from $14.47/14.52 late in New York on Wednesday, while platinum rose $3 to $1,444/1,449 an ounce. Palladium was flat at $369/373.

(Additional reporting by Cameron French in Toronto, James Macharia in Johannesburg, Tom Doggett in Washington and Kang Shinhye in Seoul)