Spot gold gained 0.5% at $1,523.51 per ounce as of 1:37 p.m. EDT (1737 GMT), after hitting $1,526.80, its highest since Sept. 6.
US gold futures settled up 1.1% at $1,531.50 an ounce.
"The weak German PMI numbers gave a little bit of a shock to the stock market and led investors into safety like gold and silver," said Phillip Streible, senior commodities strategist at RJO Futures.
Gold could hit $1,550 in this supportive environment of "weak interest rates, increasing geopolitical risks, no (trade) agreement with China and weak data that shows we are slipping into recession," Streible added.
German private sector activity shrank for the first time in 6-1/2 years in September as a manufacturing recession deepened unexpectedly and growth in the service sector lost momentum, while euro zone business growth stalled, a survey showed on Monday.
Meanwhile, better-than-expected US manufacturing PMI data helped stock markets pare some losses, but failed to dent gold's upward momentum.
Investors are also keeping a close eye on US-China trade ties, after a Chinese agriculture delegation cancelled their visit to US farm states, adding to the uncertainty in the drawn-out dispute that has weighed on the global economy.
Meanwhile, palladium prices rose 0.6% to $1,650.60 an ounce, having soared to a record high of $1,664.50 earlier. The autocatalyst metal has risen nearly 8%, or about $115, so far this month.
"People are starting to realize that auto sales and production outside of China is actually not so bad and so demand from the industrial sector is stronger that what people thought," said Jeffrey Christian, managing partner of CPM Group.
Silver jumped 3.5% to $18.61 per ounce and platinum rose 1.1% to $955.85.