Gold faces M-top risk as dollar and AI capex challenge 2026 rally

Gold's 2026 rally faces a structural challenge as a resurgent dollar and an AI-driven capital expenditure cycle threaten to cap further upside, Essence Securities said.

Spot gold rose 1.3 percent to $4,176.29 per ounce after weak US jobs data, though the bounce may mark a secondary top in an M-top formation, Essence Securities said.

"Gold has likely reached a major historical top similar to the 2021 Mao Index peak in Chinese equities," Zou Zhuqing, a strategist at Essence Securities, wrote in a July 13 report.

The June FOMC meeting showed half of voters expect at least one rate hike this year, with the policy rate median revised upward. The dollar has shifted from weak to resilient, compressing the monetary premium that drove gold's rally. Capital expenditure by the five largest US technology companies is projected to reach about $805 billion in 2026, up 79 percent from $449 billion in 2025, creating a dollar-demand loop that undermines the de-dollarization narrative, the report said.

A confirmed M-top would imply gold's all-time highs are behind it, with the potential for a sustained bear market if AI-driven productivity gains strengthen the dollar further. The September FOMC meeting is the next decision point that will determine whether gold can hold above $4,000 or begin a deeper correction.

The Dollar Shift That Changes Gold's Calculus

Gold's rally over the past two years was built on three pillars: central bank buying, de-dollarization fears, and expectations of Fed easing. All three are now under pressure. The dollar framework has shifted from a weak-dollar regime — where rate cuts and persistent inflation pushed the dollar lower — to a "not weak" regime where rates stay elevated and inflation remains sticky, according to the report.

Central banks have been purchasing about 1,000 tonnes of gold annually over the past four years, double the 500-tonne pace of the prior decade, according to the World Gold Council's 2026 survey. While this provides a structural floor, the report argues it is insufficient to sustain the rally if the dollar continues to strengthen.

The US economy added 57,000 jobs in the latest nonfarm payrolls report, 48 percent below the consensus estimate of 110,000. That miss pushed the probability of a September rate hike from 66 percent to about 51 percent, according to the CME FedWatch Tool. But the report argues that one weak payrolls print is insufficient to reverse the structural shift in the dollar.

AI Capex Creates a New Dollar Circulation Loop

The most significant structural force against gold may not be Fed policy but the AI investment cycle. US hyperscalers — Microsoft, Amazon, Google, Meta and Oracle — are projected to spend about $805 billion on capital expenditure in 2026, up from $449 billion in 2025. Much of this flows to Asian supply chains in South Korea and Taiwan, whose export surpluses recycle back into dollar-denominated assets.

This creates a self-reinforcing loop: US tech capex drives Asian export earnings, which flow back into US assets, supporting the dollar. The mechanism weakens the de-dollarization thesis that has been a core driver of gold demand, the report said.

Bank of America, which had issued a $6,000 per ounce gold target in January 2026, has revised that projection downward, citing the rising probability of rate increases extending into December.

Historical precedent supports the M-top thesis. Gold formed similar double-top patterns in 1975-1981 and 2010-2013, both times when policy tightened first and the market took time to fully price the shift. In both cases, the second top was followed by a multi-year bear market.

This article is for informational purposes only and does not constitute investment advice.