Why gold and silver continue to rocket higher, debunking tax filing myths

Key Concepts

• Debasement Trade: A strategy to invest in assets like gold and Bitcoin as a hedge against the perceived devaluation of fiat currencies, particularly the US dollar, due to extensive monetary stimulus and money printing.
• Geopolitical Flight to Safety: The movement of capital into assets perceived as safe havens during times of geopolitical instability, traditionally US Treasuries, but increasingly gold due to concerns over asset seizure.
• MAG 7 (Magnificent Seven): Refers to a group of large, influential technology companies (e.g., Microsoft, Meta, Tesla) whose earnings reports significantly impact market performance.
• Standard Deduction: A fixed dollar amount that taxpayers can subtract from their adjusted gross income if they do not itemize deductions.
• Itemized Deductions: Specific expenses that taxpayers can subtract from their adjusted gross income, such as state and local taxes (SALT), mortgage interest, and charitable contributions.
• SALT Deduction: State and Local Tax deduction, which allows taxpayers to deduct certain state and local taxes paid.
• Senior Deduction: A new tax deduction for individuals aged 65 and older.
• W2 Employees: Individuals who receive a W2 form from their employer, indicating wages and taxes withheld.
• 1099 Income: Income reported on a 1099 form, typically for independent contractors or non-employee compensation.
• CTA Buyers: Commodity Trading Advisor buyers, often hedge funds, who use systematic strategies to trade futures and options.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.
• Autonomy: The capability of a system, such as a vehicle, to operate independently without human intervention.

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Market Performance and Economic Indicators

The trading day closed with mixed results across major averages. The S&P 500 closed slightly above its last record high at 6978. The Nasdaq Composite was up 0.9%, while the Dow Industrial Average was down 0.8%, primarily weighed down by United Health. The US dollar has been in decline year-to-date, a trend President Trump did not seem concerned about, stating he could make it "go up or down like a yo-yo." This comment coincided with a further dip in the dollar.

In terms of sector performance, technology and utilities led the gains today. However, the S&P 500's record territory is also attributed to strong year-to-date performance in other sectors including energy, materials, staples, and industrials. The NASDAQ 100 saw a lift for some of the MAG 7 companies ahead of their earnings reports. Commodities, including crude oil and gold, received a boost due to the declining dollar, with gold reaching another all-time high.

Gold's Stunning Rally and the "Debasement Trade"

Gold continues its remarkable rally, holding above $5,000 for a second day, with some Wall Street analysts predicting it could hit $6,000 this year. Ben McMillan, Chief Investment Officer at IDX Advisors, attributes this to the "debasement trade." He notes that gold broke $4,000 in October and then $5,000 just over 100 days later.

Key Arguments for Gold's Rise:

• Central Bank Buying: Post-COVID, central banks globally doubled their gold purchases from approximately 500 tons per year to 1,000 tons per year, often funding these purchases by selling US Treasuries.
• Monetary Stimulus: Approximately 80% of all US dollars in existence have been printed since COVID, leading to a fundamental repricing of gold as a structural tailwind against currency debasement.
• "Debasement Trade" Expansion: This trade, initially driven by central banks, has now moved into the broader investing landscape.

Peter Bvar framed the gold rally not as a safety trade but as a "tectonic shift in where global participants are most comfortable parking their money and preserving value."

Geopolitical Flight to Safety Premium

Ben McMillan 100% agrees with Bvar's framing, particularly highlighting the impact of the US unilaterally seizing Russian dollar-denominated assets during the Russia-Ukraine conflict. This action signaled to the rest of the world, including allies like Japan, that dollar assets might not be entirely safe. Consequently, gold has gained a "geopolitical flight to safety bid," a role historically dominated by US Treasuries. This adds a premium to gold beyond the debasement trade.

Investment Strategy for Gold

For investors considering gold, McMillan advises against waiting for a dip. He states that gold should be a part of a diversified portfolio, even a traditional 60/40 portfolio. He recommends dollar-cost averaging as a good way to gain exposure. He emphasizes that this is not a multi-year trade but a "multi-decade trade" and a "repricing" of the asset, suggesting it belongs in every portfolio. He differentiates gold from silver, noting silver's more "parabolic run" and technical factors like option expiration causing pressure.

Bitcoin and Digital Gold

IDX Advisors are "constructive on Bitcoin this year." While Bitcoin "sat out much of 2025," which McMillan believes was good for it as an asset class, it is also seen as part of the "debasement trade." He anticipates a "bid for Bitcoin" going forward, especially as capital rotates into hard assets and precious metals. Technically, he believes 2025 being a "sidelines year" was beneficial. He would be surprised if Bitcoin doesn't set new all-time highs or at least get close this year.

Key Bitcoin Price Levels:

• Above $90,000: Expected to attract CTA buyers and hedge fund buyers.
• Above $100,000: Expected to trigger retail buying, potentially acting as a catalyst for new all-time highs. Blockchain activity shows a "pretty good bid at $85,000."

Copper's Surge and Natural Gas Outlook

Copper has also seen a "crazy rally," jumping from below $9,000 per ton last year to over $13,000 per ton recently. Jake Connley from Yahoo Finance attributes this to three main factors:

1. Tariff Policy Uncertainty: The Trump administration's initial announcement of copper tariffs last summer led to a rush to import copper into the US, creating artificial tightness.
2. Supply Disruptions: Major incidents at mines like the Grassburg mine in Indonesia and other sites have reduced global supply.
3. Demand from AI and Data Center Boom: Copper is a necessary metal for wiring and components in AI data centers, driving significant demand. While some analysts suggest the market might be "overheated," copper prices have been racing upward.

Natural Gas: Prices have traded down recently as traders took profits after a jump last week ahead of "winter storm Fern." However, new NOAA predictions for another round of storms this weekend, though smaller and more contained to the Eastern Seaboard, could cause prices to move back up if severe weather predictions materialize, leading to renewed trader interest and tightening pipeline capacity.

Tax Season 2025: New Rules and Deductions

Tax filing season is underway, with taxes due on April 15th. Emma Aerman highlights several new tax rules stemming from President Trump's "One Big Beautiful Bill Act" passed last year, which are expected to lead to bigger refunds.

Key New Provisions:

• Increased Standard Deduction: A general increase in the standard deduction amount.
• Senior Deduction: A new $6,000 deduction for individuals aged 65 and over. For married couples filing jointly, if both are 65+, each can claim the $6,000 deduction, subject to income phase-outs. This is a separate deduction, not part of standard or itemized deductions.
• Increased SALT Deduction: For itemized filers, the State and Local Tax (SALT) deduction has increased from $10,000 to $40,000. This is particularly impactful for residents in high-tax states, potentially allowing more people to itemize.
• "No Tax on Tips" and "No Tax on Overtime": These popular provisions are more complex than their titles suggest. Taxpayers can deduct up to $25,000 of tips from taxable income and up to $12,500 of overtime pay. However, Medicare, Social Security, and state/local taxes still apply, and there are income limits and phase-outs.
• Increased Child Tax Credit: An increase in the credit for families with children.
• Auto Loan Interest Deduction: Interest on auto loans for "Made in America" vehicles (final assembly in the US) can now be deducted.

Refunds are expected to be larger this year, trending closer to $4,000 on average, up from around $3,000 in recent years, providing extra cash for expenses or savings.

Tax Myths Debunked

Tom Oven, Director of Tax Content at the National Association of Tax Professionals, debunks common tax myths:

• Myth 1: Filing early gets you a bigger refund. Busted. There is no connection between filing early and receiving a larger refund.
• Myth 2: Forming an LLC automatically grants tax write-offs. Busted. Forming an LLC does not provide additional business deductions beyond what a sole proprietorship or corporate entity would already have.
• Myth 3: W2 employees can take a home office deduction if they work remotely. Busted (after 2017). The Tax Cut and Jobs Act eliminated unreimbursed employee business expenses. This deduction is now only available for self-employed individuals. W2 employees should seek reimbursement from their employers for work-from-home expenses.
• Myth 4: If I don't get a 1099, the IRS doesn't know about the income. Busted. The IRS is aware of income even without a 1099. Tax law states anything of value is taxable. Taxpayers may have elected electronic distribution for documents, so not receiving mail doesn't mean no income.

Audit Likelihood and Common Mistakes

• Audit Likelihood: Audits are rare, with only about 1-2% of American taxpayers being audited, and even fewer for businesses. The IRS uses algorithms to identify returns that fall outside expected parameters.
• Common Mistakes & Advice: For self-filers, Tom Oven strongly recommends using tax software to eliminate common errors like math mistakes, incorrect Social Security numbers, or forgetting to include income. He also advises using direct deposit for refunds to ensure a smoother experience and reduce human error.

Upcoming Market Events (Wednesday, January 28th)

Wednesday, January 28th, is a busy day for markets:

• Tech Earnings: Three of the Magnificent Seven companies report after market close:
  • Microsoft: Focus on cloud capacity and whether AI demand is constrained by data center bottlenecks.
  • Meta: Investors will watch capex closely as AI infrastructure spending rises, potentially pressuring margins.
  • Tesla: Analysts will monitor data on deliveries, pricing, and progress on autonomy and AI, especially after CEO Elon Musk's comments about "agonizingly slow" early production for the Cyber Cab and Optimus.
• Federal Reserve Interest Rate Decision: Markets widely expect the central bank to hold rates steady. There is political pressure from President Trump and a looming announcement for the next Fed chair. Betting markets show a late swing towards BlackRock's Rick Rieder, with his odds nearing 50%.

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Synthesis/Conclusion

The market is navigating a complex landscape characterized by a declining US dollar, a surging gold market driven by the "debasement trade" and geopolitical concerns, and a robust copper market fueled by AI demand and supply issues. Investors are advised to consider gold as a structural, multi-decade portfolio component. Bitcoin is also seen as part of the debasement trade with significant upside potential. Meanwhile, tax season brings new deductions and increased refunds under the "One Big Beautiful Bill Act," though some popular provisions are more nuanced than their headlines suggest. Taxpayers are cautioned against common myths and encouraged to use software for accurate filing. The week culminates with critical tech earnings and a highly anticipated Fed decision, setting the stage for significant market movements.