Why Gold is a Respectable Asset Class Frank E. Holmes, Chief Investment Officer U.S. Global Investor

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Why Gold is a Respectable Asset Class! Frank E.
Holmes, Chief Investment OfficerU.S. Global
Investors, Inc.
For more information or copies of this
presentation, please contact Rolf Gatlin at
210.308.1268 or rolf_at_usfunds.com.
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Investment Cycles

• Financial market relationships are characterized
  by cycles whose direction and amplitude change
  over time.
• Different asset classes have different cyclical
  patterns.
• It is important to understand the critical
  drivers for each security and asset class.

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USGI Investment Process

• We believe the essence of forecasting lies in a
  process that focuses on
• The current and historical inter-market dynamics
• Relationships among countries (GDPs),
  currencies, interest rates, commodities, bonds,
  earnings and equities at different stages in the
  economic cycle.

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Wisdom of Diversification
Diversification does not protect an investor from
market risks and does not assure a profit.
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Reversion to the MeanWill Equities Move Down to
Their Mean . . .
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Countercyclical AttributesRotational
Performance Cycle
TSE Gold Index
vs. SP 500

• The chart clearly demonstrates significant
  rotation between Canadian gold stocks and the SP
  500 Index.
• The countercyclical nature of gold stocks to the
  SP 500 Index make gold stocks an excellent asset
  class for a diversified portfolio.

Source Bloomberg, Toronto Stock Exchange
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Efficient Frontier
Source Bloomberg, Toronto Stock Exchange
Paretos Law prevails 8020 rule.
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Opportunity? Fund Assets Still Below The Mean
Source Ned Davis Research
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Opportunity? Fund Assets Still Below The Mean
Source Ned Davis Research
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Market Exuberance
Through the Cycles Discounts and Premia to NPV
Peak cycle premium
Justifiable range?
Base cycle discount
Source Deutsche Securities estimates
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A Mine Life Cycle Approachto Investing in Gold
Stocks
M5

• Management
• Money
• Market Cap
• Mineral
• Mining Cycle

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Three Key Factors in Picking a Natural Resource
Stock
1. Increasing reserves. 2. Increasing
production. 3. Increasing cash flow.
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Three Price Levels When Buying Exploration
Companies
1. Wholesale price. 2. Retail price. 3.
Fairytale price.
Source Bob Bishop
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Life Cycle of a Mining Share
Techniques
Stage
Higher Risk
TrenchingGeophysicsGeochemistryGeology
Early Stage Exploration
TrenchingDrillingGeophysicsDiscovery
Resource Identification
Global ResourceInfill DrillingStep Out Drilling
Resource Definition
EngineeringMetallurgicalMineable ResourceCost
Estimates
Pre-Feasibility Study
OptimizationCapexOperating CostsReserves
Feasibility Study
ConstructionFinancingEngineeringPermitting
Development
GrowthOperatingStart-Up
Production
Lower Risk
Source BMO Nesbitt
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Life Cycle of a Mining Share
START UP Becomes Tier 2 Company
10
HIGHER RISK
9
REALITY SETS IN
CONFIRMED DEPOSIT Becomes Tier 3 Company
8
7
LOWER RISK
6
PRODUCTION DECISION
5
SHARE PRICE
4
3
2
1
0
Discovery Speculation 1 - 2 Years
Development Investment Analysis 2 - 3 Years
Production Revaluation 2 - 3 Years
The performance shown is hypothetical and does
not necessarily reflect the performance of any
U.S. Global Investors product.
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Life Cycle of a Mining Share
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U.S. Current Account Deficit
Source Financial Times
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U.S. Exports vs. Imports
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U.S. Net Saving and Net Investment
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Comparison of 12-Month Growth Rates
By 2050, China and maybe India will overtake the
U.S. economy in size. Jeffrey D. Sachs,
Fortune
Metal demand/ consumption correlates better with
industrial production (IP) than GDP. Chinas IP
growth rates far exceed other major economies.
1. Source Bloomberg as of June 30, 2004 2.
Source Bloomberg as of March 31, 2004
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Copper!
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Chinas Gold Demand
The new Shanghai Gold Exchange and liberalization
of citizens to freely buy gold and a cultural
affinity towards gold, makes gold an attractive
asset class.
Grams
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Capital Flow to Asia/Pacific
Source Financial Times
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Overseas Chinese
Ethnic Chinese who live outside the mainland

• Dispersed among 60 countries globally
• 85 live in Southeast Asia
• 90 of the 57 million overseas Chinese are now
  naturalized citizens of their adopted countries
• 1 million live in California

Source John Naisbitt
Hong Kong
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Overseas Chinese
Tremendous Economic Power
Percentage of Listed Companies Owned by Overseas
Chinese
Source John Naisbitt
Hong Kong
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Overseas Chinese
Compare overseas Chinese population to wealth
controlled.
The world is moving from a collection of
nation-states to a collection of networks.
Singapore
Source John Naisbitt
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Summary

• By creating a disciplined but flexible system to
  investment decision making, along with prudent
  and tangible risk control measures.
• US Global Investors strives to maximize
  opportunities and provide superior risk adjusted
  returns over time.

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• For more information on the Gold Shares Fund
  (USERX), World Precious Minerals Fund (UNWPX), or
  Global Resources Fund (PSPFX)
• Please call 1-800-US-FUNDS
• Or visit our website www.usfunds.com
• Performance data quoted above is historical.
  Past performance is no guarantee of future
  results. Current performance may be higher or
  lower than the performance data quoted. The
  principal value and investment return of an
  investment will fluctuate so that your shares,
  when redeemed, may be worth more or less than
  their original cost. You can obtain performance
  data current to the most recent month end by
  calling 1-800-US-FUNDS. Press option 5 to speak
  with an investor representative. This information
  will be available no later than seven business
  days following the most recent month end.
• Please consider carefully the funds
  investment objectives, risks, charges and
  expenses. For this and other important
  information, obtain a fund prospectus by visiting
  www.usfunds.com or by calling 1-800-US-FUNDS
  (1-800-873-8637). Read it carefully before
  investing. Distributed by U.S. Global Brokerage,
  Inc.
• The SP 500 Stock Index is a widely recognized
  index of common stock prices in U.S. companies.
• The Toronto Stock Exchange Gold and Precious
  Minerals Index is a capitalization-weighted index
  designed to measure the performance of the gold
  and precious minerals sector of the TSX 300
  Index.
• The Philadelphia Gold and Silver Index (XAU) is a
  capitalization-weighted index that includes the
  leading companies involved in the mining of gold
  and silver.
• The U.S. Trade Weighted Dollar Index provides a
  general indication of the international value of
  the U.S. dollar.
• The funds may be susceptible to adverse economic,
  political or regulatory developments due to
  concentrating in a single theme. The price of
  gold is subject to substantial price fluctuations
  over short periods of time and may be affected by
  unpredicted international monetary and political
  policies. We suggest investing no more than 3
  to 5 of your portfolio in gold or gold stocks
• Holdings as a percentage of net assets as of
  9/30/04 Gold Shares Fund Goldcorp (6.25) and
  Aber Diamonds (0.99)
• Global Resources Fund Goldcorp (0.02)
• World Precious Minerals Fund Goldcorp (2.18)
  and Aber Diamonds (0.94)