Spot gold was up 0.4% at $1,775.69 per ounce as of 0224 GMT. U.S. gold futures rose 0.3% to $1,787.10.
The dollar index was down 0.2%.
"With market participants trying to seek clarity on the Federal Reserve's rate hike, rate expectations have been sensitive to incoming economic data," said IG Market strategist Yeap Jun Rong.
"Signs of stronger-than-expected demand may lead markets to revisit more hawkish expectations."
One such instance was on Monday when data showed that U.S. services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying economic momentum.
Bullion dropped from a five-month high to close 1.6% lower as the dollar rebounded after the data prompted speculation the Fed may lift interest rates more than recently projected.
Higher interest rates tend to weigh on gold's appeal as they increase the opportunity cost of holding the non-yielding metal.
Market participants currently expect a 91% chance of a 50 basis points (bps) hike in the Fed's policy meeting next week.
"So, a slowdown in rates is still the consensus. That could be driving some slight recovery," Yeap said.
The European Central Bank is also likely to raise interest rates by 50 bps next week amid ongoing inflationary concerns, governing council member Gabriel Makhlouf said on Monday.
Spot silver climbed 1.2% to $22.52. Platinum was up 0.5% to $1,002.50 and palladium gained 0.6% to $1,886.63.
(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Subhranshu Sahu and Savio D'Souza)
By Ashitha Shivaprasad
