Spot gold edged up 0.2 per cent to $1,222.56 an ounce by 6 am, after dropping 2.6 per cent in the previous session - its biggest one-day fall in two months. It fell to $1,217.39 on Monday, its lowest since early July.
A gauge of U.S. factory activity hit a 2-1/2-year high in November and construction spending increased solidly in October, in the latest indication the economy was gaining strength despite fiscal headwinds.
The data could bring the Fed a step closer to scaling back its $85 billion in monthly bond purchases. Markets fear the tapering could begin as early as this month when the bank meets for its policy meeting on December 17-18.
Data on US GDP and non-farm payrolls is set to be released later this week and could further give clues about the strength of the economy.
Hedge funds and money managers cut bullish bets in futures and options of U.S. gold and silver, and they reduced net shorts in copper for the week ended November 26, a report by the Commodity Futures Trading Commission showed.
US Mint sales of American Eagle silver coins in November fell 27 per cent year-on-year, while the Perth Mint's sales of gold bars and coins fell by nearly a third in the same period.
UBS slashed its 2014 average price forecast for gold, saying that the yellow metal was unlikely to regain its positive appeal amid an upbeat outlook for the global economy and the timing of tapering by the Fed.