NEW YORK/LONDON (Reuters) - Gold ended higher on Monday as oil hit a record high and physical demand rebounded, but investors remained cautious ahead of this week’s meeting of the U.S. Federal Reserve on interest rates.

A shopkeeper picks up a gold chain for a customer to try in Bangkok's Chinatown February 4, 2008. REUTERS/Sukree Sukplang

Bullion rose as high as $895.80 an ounce and was at $891.65/892.65 by New York’s last quote 2:15 p.m. EDT, against $886.90/888.30 in New York late on Friday.

U.S. gold futures for June delivery on COMEX division of New York Mercantile Exchange settled up $5.80 at $895.50 an ounce.

Gold was supported by strong oil prices, but analysts said bullion’s upward movement was not as impressive as last month when soaring oil and a record low dollar propelled gold to a lifetime high of $1,030.80 on March 17.

“Sentiment towards gold is not nearly as bullish as it was, not least because the outlook for the dollar is considerably less bearish,” said Tom Kendall, metals strategist at Mitsubishi Corporation.

“If we get more positive U.S. data this week that surprises on the upside, or if the tone of the statement following the Fed meeting gives people confidence that it has come to the end of its interest rate easing cycle, then it would not be surprising to see gold pushed lower.”

The metal has fallen 13 percent since then and has been struggling to regain $900. It hit a three-week low of $877.60 on Friday before a surging oil market lifted gold’s appeal as a hedge against inflation.

Oil hit a record near $120 a barrel, boosted by a string of bullish factors including disruption of Nigeria’s output and a UK refinery strike, highlighting anxieties over supplies. U.S. crude futures settled up 23 cents at $118.75 a barrel.

“I do expect gold to drift around $900 for a little while, until we really see another strong shift in sentiment. Even the spike in oil is failing to really fire up the gold market,” said Daniel Hynes, metals strategist at Merrill Lynch.

“After such a good run, a lot of people took the opportunity to liquidate, but the general trend would be for rising prices in the medium- to long-term,” he said.

FED MEETING AWAITED

In the currency market, the dollar marginally fell against the euro ahead of the Federal Reserve’s meeting on Wednesday.

The Fed has slashed borrowing costs in response to the credit crisis that erupted last year, but some speculate that climbing fuel and food prices could prevent any more big cuts.

A rate cut tends to weaken the dollar and lift gold demand, as the metal is seen as an alternative investment and often moves in the opposite direction of the U.S. currency.

“Gold’s still trying to find a base here. It’s taking direction from the dollar,” said one New Jersey-based trader.

The trader said that robust physical buying from Asia had boosted gold prices, especially during the Asian trading hours. Gold should remain supported provided that Asian physical demand remained strong, he said.

In other metals, platinum rose to $1,964/1,974 an ounce from $1,944/1,964 late on Friday and silver gained to $16.95/17.05 an ounce from its precious finish of $16.83/16.89. But spot palladium fell $2 to $433.50/439.50 an ounce.