bad news is good news: a contrarian case for commodities

usfunds.com 1.800.US.FUNDS January 2015 • 15-018

Bad News is Good NewsA Contrarian Case for Commodities

Frank Holmes, CEO and Chief Investment Officer

John Derrick, CFA, Director of Research

Brian Hicks, CFA, Portfolio Manager

Ralph Aldis, CFA, Portfolio Manager

usfunds.comJanuary 2015 15-018

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Today’s Speakers

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Performance and Results Oriented

Winner of 29 Lipper performance awards,certificates and top rankings since 2000

(Four out of 13 U.S. Global Investors Funds received Lipper performance awards from 2005 to 2008, six out of 13 received certificates from 2000 to 2007, and two out of 13 received top rankings

from 2009 to 2010. See Disclosures pages for additional information.)

Investment leadership results in performance


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Focus on Education

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64 MFEA STAR Awards for Excellence in Education

Mutual Fund Award


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Reasons for Active Management

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Did You Know?

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India has

600 million people under the age of 25

That’s 2 times the entire population

of the U.S.

India’s stock market was up 32% in 2014.


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7 Billion People — Tipping PointCenturies to Decades to a Decade for a Billion People

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MeltingPoint


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Facebook Use Around the World1.2 Billion People Connected Without Passports!

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See Disclosures pages for holdings in any funds mentioned.


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Gutenberg Printing Press Invented 1440Knowledge Game Changer

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The cost of a book in 1440 was $20,000 in today’s gold prices and quickly fell to $200. Literacy went from 10% to 60% of population.

MeltingPoint


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Epic Price Reversal in Dollar and Commodities

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Strong Dollar, Weaker Global PMIs and Rising Oil Supply Impact Commodities

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December 26, 2014


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Strong Dollar Weighs on Commodity Prices

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Oil Crash Translates into a $500 Billion Global Tax Break

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Breakdown$90 per Barrel


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Jets Fly High As A Result of Declining Fuel Prices

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Lower Gas Pump Prices Spur Consumer Spending Up $150 Billion

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Vehicle Sales

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U.S. ISM Manufacturing Index (PMI) is Strong — Above 50

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December 26, 2014


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Global Manufacturing PMI’s One-Month Moving Average Remains Below the Three-Month Moving Average

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December 26, 2014


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Global Trend is Your Friend — PMI and Commodities Relationship in Uptrend

19Past performance is no guarantee of future results.

December 26, 2014


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Global Trend is Your Friend — PMI and Commodities Relationship in Downtrend

20Past performance is no guarantee of future results.

December 26, 2014


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Eurozone 5-Year Yields at or Below Zero

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German Five-Year Breakeven Rate Gauges Inflation Outlook

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Breakout in Gold When Priced in Euros

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India: Real GDP and Investment Growth

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India: Domestic Car Sales and Truck Sales

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Modi

Frank


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India: Domestic Mutual Funds Net Equity Investment

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30 Year Study: Oil vs. Dollar (Year over Year) Volatility Opportunity

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Dollar:

1 sigma = ±9.2%

Oil:

1 sigma = ±33.7%


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Opportunity: Inverse Relationship Between Oil and the Dollar

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What’s Happening with Gold?

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Inverse Relationship Between Real Interest Rates and Gold — Fear Trade

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Real Rates


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Gold is Second Best Performing Currency of 2014

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March 13, 2014

Inverse Pattern of Gold vs. 5-Year Treasury Yield is Profound


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Chinese Gold Demand Still Strong

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Driver: The Love Trade

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Holidays Drive Gold Demand

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Managing Expectations — Gold Seasonality

Past performance is no guarantee of future results.


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Gold “Love Trade”Strong Correlation Between Rising Incomes and Gold Price

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Chinese Jewelry Consumption on the Rise

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Great Shift in Gold Ownership

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April 25, 2014


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China’s Gold Share of Total Reserves and Foreign Exchange Reserves

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April 25, 2014


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Low Oil Prices Have Benefited Chinese Airlines

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3 Risks for Resource Stocks

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Gold and Precious Metals Fund (USERX) Breaks Out

43See Performance page for complete fund performance.


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Fund Performance

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Gold in South African Rand

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Gold in Japanese Yen

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Gold in Euros

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Gold in Canadian Dollar

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TSX Gold Equities/Gold Bullion Ratio is 1 Standard Deviation Below Trend

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Strong Dollar Tough on U.S. Gold Producers

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Global Gold Producers Helped By Strong Dollar

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Gold Companies Are Getting Leaner with Write-Downs of $23.1 Billion, which Has Impacted Gold Equity Funds

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Managing Expectations: Gold Mining Companies Have More Verbs and Adjectives than Nouns

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Tom Cruise, Jerry Maguire


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+3 Million Ounce Discoveries Becoming Scarce

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Exploration Spending Has Skyrocketed Without True Success

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At $9 billion/year plus replacement requirements of 90 Million oz/year a discovery cost of $100/oz is needed. This is low.


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The Five M’s for Gold Miners

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• Management

• Mine Lifecycle

• Market Cap

• Money (Burn Rate)

• Minerals

Weight of Truck: 423 tonsLoad Capacity: 240 tons

Frank Holmes,Mauritania


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Value Drivers for Superior Performance


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Top 10 Holdings USERX and UNWPX

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As of 12/31/2014


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Top 10 Holdings PSPFX

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As of 12/31/2014


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The Life Cycle of a Mine

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Case Study: A Look at Klondex Mines

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Past performance is no guarantee of future results. See Disclosures pages for holdings in any funds mentioned.


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Klondex Closely Follows Normal Life Cycle of a Mine

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Klondex Mines Outperforms

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The Undervaluation of Klondex Mines Creates Opportunity

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West Texas Crude Oil Historical PatternSeasonal Lows Are February

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Contrarian OpportunityReal Oil Prices Back to Late 80s Level When Global Population Was 4 Billion People vs. 7 Billion Today

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Time to Think Contrarian Towards Oil Using Short-Term Relative Strength

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Analysis of S&P 500 Ten Sectors Shows Energy Only 8% of Market Caps

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Oil Majors Are Extremely OversoldThird Worst Drop in 26 Years

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OPEC Break-Even Oil Prices for Balanced Fiscal Budgets

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Breakeven Oil Prices Suggest $70 Oil Is Unsustainable

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Rising U.S. Oil Production

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Declining Oil and Gas Rigs

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Oil Rigs

Gas Rigs


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Production Growth to Decline

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Wider Spread Implies Higher Oil Prices in Over 12 Months

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Wider Spread Implies Higher Oil Prices in Over 180 Days

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High Dividend Yields Point to Cheap European Energy Stocks Paying 2% Higher

77See Disclosures pages for holdings in any funds mentioned.


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MLP Yields Attractive Relative to 10-Year Treasury

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History as a Case Study for OilToday’s Oil Price Action Similar to 1986

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High Yield Energy Yields Expanding vs. Corporate

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Energy Debt at Record Levels

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Opportunity: Inverse Relationship Between Energy Stocks and the Dollar

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Oil Producers Outperforming Crude

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Shrinking Supply—Global Copper Warehouse Inventories Are Reducing Further

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U.S. Metals & Mining Stocks in 2014 Demonstrated a Wide Range of Performance

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Kitco News — Gold Game Film Weekly

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Go to usfunds.comTo Sign Up for the Investor Alert Today

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Subscribe to the weekly, free e-newsletter at usfunds.com/subscribe

And for advisors—Subscribe to Advisor Alert at usfunds.com/AAsubscribe


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Disclosures

Please consider carefully a fund’s 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.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are 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 5% to 10% of your portfolio in these sectors.

Lipper Fund Awards are earned for a fund’s consistent performance over one or more time periods, based on Lipper’s Consistent Return score. Consistent Return is a quantitative metric that incorporates two characteristics: risk-adjusted return, and the strength of the fund's performance trend. The top-scoring Consistent Return fund within each classification receives the awards. Lipper's Performance Achievement Certificates are awarded to funds with returns that topped their Lipper category over one or more time periods. Lipper top rankings are achieved based on funds with returns that topped their Lipper category over one or more time periods. Past performance does not guarantee future results.

Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Users acknowledge that they have not relied upon any warranty, condition, guarantee, or representation made by Lipper. Any use of the data for analyzing, managing, or trading financial instruments is at the user's own risk. This is not an offer to buy or sell securities.

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Disclosures

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

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 Alerian MLP Infrastructure Index, comprised of 25 energy infrastructure Master Limited Partnerships, is a liquid, midstream-focused subset of the Alerian MLP Index (NYSE: AMZ). The index, whose constituents earn the majority of their cash flow from the transportation, storage, and processing of energy commodities, provides investors with an unbiased benchmark for the infrastructure component of this emerging asset class. The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. 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. The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states. The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The NYSE Arca Airline Index (XAL) is an equal dollar weighted index designed to measure the performance of highly capitalized companies in the airline industry. The XAL Index tracks the price performance of major U.S. and overseas airlines. 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 Producer Price Index (PPI) measures prices received by producers at the first commercial sale. The index measures goods at three stages of production: finished, intermediate and crude. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The S&P 1500 Energy Index is an unmanaged market capitalization index that tracks the companies in the energy sector as a subset of the S&P 1500. The S&P/TSX Global Gold Index is an international benchmark tracking the world's leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies.

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Disclosures

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund (PSPFX), Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX) as a percentage of net assets as of 12/31/2014: Air China Limited 0.00%; AK Steel Holding 0.00%; Alamos Gold (UNWPX 0.04%); Alpha Natural Resources Inc. 0.00%; AngloGold Ashanti 0.00%; Arch Coal Inc. 0.00%; Argonaut Gold 0.00%; AuRico Gold (USERX 1.83%); B2Gold (UNWPX 0.28%); Barrick Gold Corp 0.00%; BP 0.00%; Chevron (PSPFX 2.34%); China Eastern Airlines Corp. 0.00%; China Southern Airlines 0.00%; Cloud Peak Energy Inc. 0.00%; ConocoPhillips 0.00%; Consol Energy Inc. 0.00%; Detour Gold 0.00%; Devon 0.00%; Eni 0.00%; EOG Resources 0.00%; Exxon Mobil (PSPFX 2.84%); Facebook 0.00%; Freeport-McMoRan 0.00%; Gold Fields Ltd. (USERX 1.51%, UNWPX 0.36%); Goldcorp (USERX 1.03%); Harmony Gold Mining Co Ltd. (USERX 0.90%, UNWPX 0.82%); Kinross (USERX 0.02%, UNWPX 0.01%); Klondex Mines Ltd. (PSPFX 1.84%, USERX 10.00%, UNWPX 9.78%); Newcrest 0.00%; Newmont Mining Corp (USERX 1.05%, UNWPX 0.22%); Nucor Corp. 0.00%; Peabody Energy Corp. 0.00%; Primero Mining (USERX 0.02%); Royal Dutch Shell 0.00%; Southern Copper Corp. 0.00%; Statoil 0.00%; Steel Dynamics Inc. (PSPFX 1.31%); Total 0.00%; United States Steel Corp. 0.00%

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bad news is good news: a contrarian case for commodities

Economy & Finance

past performance

global trend

lipper performance awards

commodities relationship

global manufacturing

global investors funds

weaker global pmis

global tax break