* UBS raises 2020 average gold forecast to $1,740 from $1,650
* Silver retreats after hitting over 7-year high of $26.19/oz
* Shanghai Gold Exchange says may take risk control measures (Updates prices)
By Eileen Soreng
July 28 (Reuters) - Gold fell as much as 1.8% on Tuesday from an all-time peak as the dollar firmed and investors squared positions after a rapid rally, while silver fell more than 9%, with the focus turning to the U.S. Federal Reserve policy stance.
Spot gold XAU= was 0.5% down at $1,931.84 per ounce by 1136 GMT, retreating from a record $1,980.57 hit earlier, as traders took profits.
U.S. gold futures GCcv1 were 0.2% lower at $1,926.70.
Silver XAG= also retreated after rising 6.4% to $26.19 per ounce. It was last down 3.8% at $23.67.
"Gold was way overbought and needed to correct," said StoneX analyst Rhona O'Connell.
"But at the moment everything is supportive; negative interest rates, intensifying geopolitical tensions and massive uncertainty surrounding the economic and financial fallout from the virus."
The dollar index bounced off a two-year low .DXY as selling eased ahead of the Fed meeting and on hopes that a massive U.S. fiscal package would be approved. USD/ Fed, which begins a two-day meeting on Tuesday, is widely expected to reiterate its accommodative policy stance.
The dollar's slight recovery also pushed gold lower, said ActivTrades chief analyst Carlo Alberto De Casa.
"I expect a consolidation phase between $1,850 and $1,950-$1,960 as the rally was a bit too quick."
The volatility of precious markets prompted the Shanghai Gold Exchange to say it would take risk control measures. of consolidation should be healthy, and long-term investors are likely to take advantage of dips to build positions," UBS said in a note, raising its 2020 average gold forecast to $1,740 from $1,650.
Safe-haven gold has rallied about 27% so far this year, mainly supported by growing doubts over an economic recovery from the pandemic and Sino-U.S. tensions.
Non-yielding bullion also benefited from the resultant low interest rate environment and massive stimulus since it's considered a hedge against inflation and currency debasement. XPT= fell 2.1% to $925.11 and palladium XPD= dropped 1% to $2,288.54.
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