www.usfunds.com
U.S. Global InvestorsSearching for Opportunities, Managing Risk
March 200909-143
Frank E. HolmesCEO and Chief Investment Officer,U.S. Global Investors
Gregory WeldonWeldon Financial
David Galland and Louis JamesCasey Research
What’s Driving Gold?
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Frank HolmesCEO and chief investment officer of U.S. Global Investors
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Gregory Weldon Founder of Weldon Financial
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Casey Research
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Weldon Financial
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Topics
• Mega-Easy Global Monetary Policy
• Wealth Deflation in U.S. Intensifying
• Global Trade and Export Revenue Deflation = Currency Crisis
• Japanese Yen May Be Next Currency ‘Domino’
• Gold and Silver Technical and Inter-Market Overview
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Narrow Money Supply Growth EXPLOSION
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Narrow Money Supply and Balance Sheet Growth Appears ‘Unsustainable,’ and Fed is Already ‘Retrenching’
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Bank of England has Cut Rates to RECORD LOW, Shifting the Focus Towards Quantitative Easing. Bank of Canada Cut Rates to 0.50%, and Discusses Quantitative Easing
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Swiss Money Supply EXPLOSION
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Swiss Short Rates Back to Historic Lows at 0.50%
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Central Bank of China Cuts Rates to RECORD LOW
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Even Japanese Money Supply Growth is Accelerating
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Trillions of Lost Net Wealth in US Residential Real-Estate Wipes Out YEARS of Wealth Accumulation and is Compounded by HUGE Equity Withdrawal and Borrowing … at Peak Prices
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US Net Worth Posts RECORD Decline in 3Q …Portending Horrifying 4Q Deflation
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Debt Levels Remain at RECORD HIGH, Following Years of Parabolic Growth in Post-Gold-Standard Era
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Home Prices Accelerating Lower. Five-Year Average is Trending Lower for the First Time in the Post-Gold-Standard Era !!!
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Price Deflation Intensifying Beyond ‘Historic’ Levels
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Virulent Wealth Deflation in Existing Homes
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Soaring, Chronic Unemployment Significantly Deflates Wage Driven Income (and, Reduces Government Tax Revenue)
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Unprecedented Period of Personal Income DEFLATION ???
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“Consumer Cocoon” … as Consumption Collapses
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Savings Rate Begins to Rise … But …
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Global Exports Collapsing … Polish Exports are DEFLATING After Violating Multi-Year Growth Uptrend
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The Polish Currency Undergoing MASSIVE Devaluation
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Sixty Percent of Polish Mortgages are ‘Denominated-in’Swiss Franc … Zloty Devaluation Versus CHF is Problematic
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Polish Household Credit Bubble …About to Burst ???
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Poland’s Sovereign Credit at Risk …CDS Soars to NEW HIGH
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Polish Zloty has COLLAPSED Versus Gold, amid DEEP Deflation in Currency “Purchasing Power”
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Indian Rupee Depreciation Not Yet at Levels Associated with Crisis ‘Lows’
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Gold ‘Priced-in’ Rupee Flirting with 50,000 Rupee Per Ounce
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Japanese Exports Collapse … Have Deflated by (-) $42 billion PER MONTH Since July
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String of Japanese Trade Deficits are UNPRECEDENTED in the Post-Gold-Standard Era
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‘Room’ for Bank of Japan Rate Cut Stimulus is ‘Limited’ …in Terms of the ‘Zero’ Fed Funds Rate in the US
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The Weight of Monetary Stimulus May Fall on The Japanese Yen
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The Credit Credibility of the World’s Largest Creditor Nation is at Risk
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Higher Interest Rates Would Pose Risk to Gold
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Physical Gold has FAR Outperformed the Mining Sector
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In Gold They ‘Trust’ … Versus ALL Paper
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Gold at New All-Time High Versus ‘Stuff’
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Is Gold ‘Signaling’ That Commodities Provide ‘Value’ … or … Is Gold ‘Overvalued’ ???
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Crude Oil as ‘Cheap’ as EVER Relative to Gold
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Gold Has Outperformed the ‘Industrial-Precious’Metal, Implying a Silver Equivalent Near $20
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As Per the Gold-Silver Ratio, Silver Was Recently Trading at $5 on a ‘Gold Equivalent’ Basis
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Technical Overview: Gold
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Technical Overview: Silver
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U.S. Global Investors
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The critical drivers for gold are pointing in the same direction.
What’s Driving Gold?
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Rotation of Commodities
Sources: Steele and U.S. Global Research
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Gold 60-Day % Change (March 1, 1994 through February 27, 2009)
Sources: Bloomberg, U.S. Global Research
Gold
Invest cash
Raise cash Raise cash
Invest cashInvest cash
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Gold vs. Dollar 60-day % Chg Oscillator (Feb 26, 1999 thru Feb 27, 2009)
Sources: Bloomberg, U.S. Global Research
Gold vs. Dollar
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Government Policy Model —Precursor for Change
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G7 Countries
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E7 Countries
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Monetary Policy
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Monetary Policy
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U.S. M2 Money SupplyBiggest Economy in the World
Source: U.S. Global Research
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China M2 Money SupplyMost Populated Country in the World
Source: U.S. Global Research
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The Five M’s for Gold Miners
• Market Cap
• Management
• Money
• Minerals
• Mine Lifecycle
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The performance shown is hypothetical and does not necessarily reflect the performance of any U.S. Global Investors product.
DevelopmentInvestment Analysis
2 - 3 Years
876543210
$109
DiscoverySpeculation 1 - 2 Years
ProductionRevaluation2 - 3 Years
REALITY SETS IN
PRODUCTIONDECISION
CONFIRMED DEPOSITBecomes Tier 3
Company
START UPBecomes Tier 2
CompanySH
ARE
PRIC
E“HIGHER RISK”
“LOWER RISK”
Life Cycle of a Mining Share
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Source: RBC Capital Markets
-60% -50% -40% -30% -20% -10% 0%
Property Ownership Dispute
Exchange Issues
Major Exploration Disappointment
Political Concerns
Operating Disappointment
Social License Concerns
Feasibility Disappointment
Major Project Delay
Env ironmental Concerns
Managing ExpectationsAvoiding D&D (Delay & Disappointment)
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Casey Research
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TSX-V vs. IS Stocks
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The Gold Rules of Exploration Investing
• Keep portfolio allocations small
• Never fall in love with a stock
• Know exactly why you own each stock
• It isn’t a profit until you sell
• Know your companies
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The Gold Rules of Exploration Investing
• Invest in private placements whenever possible
• Limit the number of your holdings
• Use volatility to your advantages
• Watch who you listen to
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8 P’s of Exploration Company Analysis
• People
• Property
• Phinancing
• Paper
• Promotion
• Politics
• Push
• Price
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Recommended Reading
www.wiley.com Promotion Code: VA276
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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
The AMEX Gold Bugs Index (HUI) is a modified equal-dollar weighted index of companies involvedin major gold mining. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Reuters/Jefferies CRB Index is an unweightedgeometric average of commodity price levels relative to the base year average price. The Goldman Sachs Commodity Index is a composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.
The following securities mentioned in the presentation were held by one or more of U.S. Global Investors family of funds as of 12/31/08: Newmont Mining Corp, Western Goldfields, New Gold, Kinross, GLD.
The opinions of our guest presenters are theirs and do not necessarily reflect those of U.S. Global Investors.
Disclosures
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www.usfunds.com1.800.US.FUNDS
www.weldononline.com
www.caseyresearch.com
Thank You For Attending Today’s Webcast.
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