U.S. Global Investors, Inc.

1
Gold Opportunities and Challenges Frank E.
Holmes Chief Investment OfficerU.S. Global
Investors, Inc.
U.S. Global Investors, Inc. 7900 Callaghan
Rd. San Antonio, TX 78229 210.308.1234
2
Efficient Frontier
Source DB Global Markets Research, CFTC,
Bloomberg
3
Index Sigma (Standard Deviation)
Magnitude for 1 standard deviation (1 sigma) as
of 1/17/07
Sigma is the Greek notation for standard
deviation. Normally distributed random data
series fall within 1 sigma from the mean around
68 of the time.
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2006 Gold Producers
Source Merrill Lynch, Bloomberg
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4th Quarter Gold Producers
Source Merrill Lynch, Bloomberg
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3 Key Factors in Picking a Natural Resource Stock
Increasing reserves. Increasing
production. Increasing cash flow.
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World Cash and Total Costs
Falling grades and rising energy prices have hurt
the cash flow margins for most large producers.
Source GFMS
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Threats?Delays/Disappointments
Average Share Price Impact By Event Type
Major Project Delay
Feasibility Disappointment
Operating Disappointment
Social/Env. Concerns/Delay
Exchange Issues
Major Exploration Disappointment
Property Ownership Dispute
Source Company reports and CIBC World Markets
Inc.
Recovery Phase...Generally gt1.5 Years, If At
All!!!
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Life Cycle of a Mining Share
START UP Becomes Tier 2 Company
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HIGHER RISK
9
REALITY SETS IN
CONFIRMED DEPOSIT Becomes Tier 3 Company
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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 or their holdings.
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Life Cycle of a Mining Share
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Whats Driving Gold?
We have a unique situation where all the critical
drivers for gold are pointing in the same
direction.
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Supply and Demand Trends
Source DB Global Markets Research, CFTC,
Bloomberg
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Fundamental DriverNet Demand
Source Bloomberg
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Gold and Silver Patterns
Source Merrill Lynch, Bloomberg
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Gold and Oil Patterns
Source M. Murenbeeld Associates Inc.
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Russia Increases Reserves

• In November, Russia said gold reserves as a
  portion of all reserves may be doubled
  increasing from 5 to 10 of all reserves.
• Russia currently has 500 tonnes (17.64moz) of
  gold.
• Doubling its reserve in gold would consume the
  countrys annual gold output for approximately 3
  years.
• Overall reserves should continue to grow as a
  result of profits from oil and gas.

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Capital Flow to Asia/Pacific
Gigantic Triangle Japan (the financiers),
China (the producer) and the U.S. (the
consumers), which is driving the global economy
and widening structural imbalances. - BCA Research
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Money Supply
Source M. Murenbeeld Associates Inc.
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Gold vs. Oil Real 2005 Dollars
(Inflation adjusted)
Mean Reversion Either gold rises or oil falls.
Source R.I. Analytics, LBMA US Dept. of
Commerce
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US Dollar Trends
Source M. Murenbeeld Associates Inc.
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Gold/Dollar/Oil Relationship
Source Bloomberg
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Gold/Dollar Relationship

Correlation -70 (5 years) Bloomberg
Gold Dollar
Dollar Gold

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5-Year Spot Gold in Rand vs. Dollars
To generate Alpha, investors need to overweight
and underweight South African gold producers in
order to beat gold indices.
Source Kitco.com
According to Morningstar, alpha is a measure of
the difference between a funds actual returns
and its expected performance, given its level of
risk as measured by beta. A positive alpha
indicates the fund has performed better than its
beta would predict. In contrast, a negative alpha
indicates the funds underperformance, given the
expectations established by the funds beta. All
MPT statistics (alpha, beta, and R-squared) are
based on a least-squared regression of the funds
return over Treasury bills (called excess return)
and the excess returns of the funds benchmark
index.
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Compare 6 month Currency Swings on Gold Prices
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Market Cycles
Through the Cycles Discounts and Premia to NPV
Peak cycle premium
Justifiable range?
Base cycle discount
Source Deutsche Securities estimates
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Rotational Performance Cycle TSE Gold Index vs.
SP 500
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Silver (CMX 40 Year Seasonal)
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Gold (CMX 32 Year Seasonal)
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Contrarian Thinking

• Reuters/Jefferies CRB Index-60 Day Oscillator

Raise cash
Raise cash
Invest cash
Invest cash
oscillator - A technical analysis term for an
indicator that moves up and down, wavelike,
within a price range.
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Gold Cycles
Spot Gold /OZ 5-Year sigma as of 1/16/07
Raise cash
Raise cash
Raise cash
Invest cash
Invest cash
Source Bloomberg

• Probability Graph of occurrences of
  occurrences
• 2 Std. Dev 32 2.45
• 1 Std. Dev 136 10.41
• 1 Std. Dev 180 13.77
• 2 Std. Dev 21 1.61

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Trade Weighted Dollar Index (DXY)
Trade Weighted Dollar Index 5-Year sigma as of
1/16/07
Raise cash
Raise cash
Invest cash
Invest cash
Source Bloomberg

• Probability Graph of occurrences of
  occurrences
• 2 Std. Dev 34 2.60
• 1 Std. Dev 156 11.94
• 1 Std. Dev 242 18.52
• 2 Std. Dev 16 1.22

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Gold Price vs. Dollar 60-day Oscillator
Gold Price vs. Dollar 60-day oscillator
38 Cash
Source Bloomberg
oscillator - A technical analysis term for an
indicator that moves up and down, wavelike,
within a price range.
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The 200 Year Commodity Cycle is Up
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Secular Bull Market in Commodities

• Demand Drivers
• 1. Global synchronicity of economies
• 2. Asias strong GDP IP growth rate
• 3. Global population 6 billion people
• Supply Drivers (Restrictions)
• 1. Higher barriers to entry due to global
  environmental and governmental
  regulations
• 2. Long lead time from exploration to
  production
• 3. Geopolitical events

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Chindia at a Glance
Nearly 40 of the Worlds Population
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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
Source World Gold Council, CEIC, Merrill Lynch
APR Economics Team
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Disclosures
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. All opinions
expressed and data provided are subject to change
without notice. Some of these opinions may not be
appropriate to every investor. The U.S. Trade
Weighted Dollar Index provides a general
indication of the international value of the U.S.
dollar. The SP/TSX Global Gold Index is designed
to provide an investible index of global gold
securities. It includes producers of gold and
related products, including companies that mine
or process gold and the South African finance
houses which primarily invest in, but do not
operate, gold mines. The Reuters/Jefferies CRB
Index is an unweighted geometric average of
commodity price levels relative to the base year
average price.The AMEX Gold Bugs Index (HUI) is a
modified equal-dollar weighted index of companies
involved in major gold mining.The Philadelphia
Stock Exchange Gold and Silver Index (XAU) is a
capitalization-weighted index that includes the
leading companies involved in the mining of gold
and silver. The SP 500 Stock Index is a widely
recognized capitalization-weighted index of 500
common stock prices in U.S. companies.The SP 500
Total Return Index is the total return version of
the SP 500 Index with dividends reinvested.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. As
mentioned in the presentation, the following
securities were held by one or more of U.S.
Global Investors clients as of 12/31/2006 Aber
Diamond, Newmont, Kinross, Buenaventura, Royal
Gold, Barrick, Eldorado, Golden Star, Iamgold,
Meridian, Goldcorp, Pan-American Silver, Bema,
Hecla Mining, Northgate, Yamana, Agnico-Eagle,
Centerra. 07-038