Obviously he handled it badly but it got me thinking, what is the best way to handle gossip about you, (especially when it's true but you don't want to tell anyone)?
I think laughing or shrugging it off, minimizing the discussion about it that you participate in, and perhaps asking people you trust to do the same (minimize if anyone mentions it to them) are good ways. Any kind of "big" reaction--anger, shock, defensiveness, bitterness, trying to figure out the source, etc.--is just going to give the gossip weight. Even making a production about "setting the record straight" could draw more attention to the gossip. Unless you're officially asked about it by a supervisor-type, I think just letting it sputter away and die is the best option.
Kind of depends on the type of gossip, too. For example, if you're pregnant, and everyone's going to know it for sure in a month but you aren't ready for people to know yet
, you probably don't want to go around flat-out denying it. Maybe a raised eyebrow along with, "Wow, the kind of things people think is appropriate to ask about these days..." while shaking your head.