* Investors cash in gains after rally to $1,127.80/oz
* Fed says closely monitoring global economy
* Coming Up: U.S. durable goods orders; 1330 GMT
(Updates throughout, changes dateline, pvs MANILA)
By Jan Harvey
LONDON, Jan 28 (Reuters) - Gold retreated on Thursday as
investors cashed in gains from the previous day's rally to
12-week highs, and after the Federal Reserve indicated it is
still on course to raise interest rates this year, despite
financial market volatility.
Spot gold XAU= was down 0.6 percent at $1,118.36 an ounce
at 1033 GMT.
The Fed kept interest rates unchanged on Wednesday and said
it was "closely monitoring" global economic and financial
developments, signalling it had accounted for a stock market
selloff but wasn't ready to abandon a plan to tighten monetary
policy this year.
While the statement was interpreted to mean the Fed was
cautious on raising rates further, expectations for a dovish
statement had been high going into the meeting.
"(This) could indicate the market was looking for a bit more
than the FOMC could deliver in terms of dovishness," Saxo Bank's
head of commodity research, Ole Hansen, said.
"We have rallied a fair bit so far this year and ... we may
begin to struggle up towards $1,136. Oil is making some
additional progress today and that may also reduce demand."
Falling oil prices have increased risk aversion this month,
boosting demand for gold as a haven, Hansen said at a round
table on Wednesday.
The threat of rising U.S. interest rates was a key factor
driving gold down 10 percent last year, but expectations of the
pace of hikes were scrolled back this month as financial markets
were hit by a wave of volatility. That has helped gold rise 5
percent in January so far.
"The U.S. Federal Reserve gave no clear signals yesterday of
how it plans to proceed with its rate hike cycle," Commerzbank (DE:CBKG)
said in a note. "If the Fed were to decide against raising
interest rates further in March, this would presumably have a
positive effect on the gold price, as this would keep the
opportunity costs of holding gold low."
Higher rates lift the opportunity cost of holding bullion,
while boosting the dollar, in which it is priced.
Uncertainty over the future path of U.S. interest rates
weighed on European stocks on Thursday, while the dollar edged a
touch lower against the euro. MKTS/GLOB
U.S. gold futures GCv1 for February delivery were up 0.2
percent at $1,118.40.
Among other precious metals, silver XAG= was down 0.4
percent to $14.43 and platinum XPT= was down 0.1 percent at
$879.24.
Palladium XPD= bucked the falling trend, however, and was
up 0.6 percent at $499.97.