Data in China, the world's second-largest economy, showed the pace of inflation was running at its fastest pace in almost three years, while a less-than-expected drop in US retail sales lifted the S&P 500 index by almost 1.5 percent.
"The worse fears of the economic data has been discounted. There is more risk appetite out there, and some of that money is flowing into the precious metals," said Bill O'Neill, partner of commodities investment firm LOGIC Advisors.
Gold is up 3 percent in the past four weeks on a flurry of disappointing US economic data including a weak jobs report.
Spot gold was up 0.5 percent at $1,521.97 an ounce by 1:22 p.m. EDT (1722 GMT), after it suffered its biggest one-day loss in a month. US August contract was up $7.60 at $1,523.20 an ounce.
Spot silver recovered from Monday's 4-percent slide, and was up 2.2 percent at $35.44 an ounce.
Bullion gained as inflation in China and India accelerated in May, prompting Beijing to lift bank reserve requirements and keeping pressure on India to raise interest rates later this week even as Asia's two big growth engines show signs of slowing.
"China and India have had strong inflation prints in the last month and that is going to keep a pretty solid level of residual physical demand out there," said RBS strategist Daniel Major.
EUROPEAN DEBT IN FOCUS
The yellow metal was also supported by underlying safe-haven demand as talk of a second bailout for Greece coming closer to a conclusion, as the European Commission pushes for a voluntary debt swap also helped shore up sentiment.
"Uncertainty will underpin the market towards the end of the month when Athens is scheduled to get its next loan under conditions that are currently being worked out," said Andrey Kryuchenkov, analyst at VTB Capital.
Greece became the lowest-rated country in the world in the rankings of credit rating agency Standard & Poor's, putting it below Ecuador, Jamaica, Pakistan and Grenada.
Gold was set to rise after falling 1 percent in each of the last two sessions. The decline in investor appetite for gold over the prior two trading days was reflected in the 241,000-ounce decline over the last week in holdings of the metal in exchange-traded funds.
Holdings of the largest gold-backed ETF, New York's SPDR Gold Trust fell 0.08 percent on Monday from Friday, while the largest silver-backed ETF, New York's iShares Silver Trust saw its holdings fall 2.1 percent.
Copyright Reuters, 2011