An exchange traded fund indexed to natural-gas futures has bounced in recent days along with the beaten-down commodity from 10-year lows. U.S. Natural Gas Fund (UNG - News) is approaching its 50-day moving average, a level it hasn’t traded above since the summer of 2011.
The natural gas ETF has rallied 11% over the past week. It is designed to track natural gas futures, rather than the spot price, so it can be adversely affected by “contango” in the market, when longer-dated contracts are more expensive. This can hurt when the fund “rolls” its contracts into the next month to maintain exposure to natural gas. [Natural Gas ETF is Heating Up As Opportunists Jump On Prices]
The iPath Dow Jones-UBS Natural Gas ETN (GAZ - News) is an exchange traded note with a similar strategy. However, investors need to be careful with this ETN. The note has suspended new share issuance, and it is trading at a premium to indicative value. [Natural Gas ETN Premium: Don’t Get Stepped on by GAZ]
On Thursday, GAZ was trading at a premium of about 100% to indicative value.
“U.S. natural gas for delivery this fall is trading at a record premium, signaling the fuel may be poised to rebound from its worst quarter in two years because of production cuts and rising demand from power plants,” Bloomberg News reported Thursday.
Prices are down 31% this year on the warmest winter in recent memory, and natural gas is the worst-performing commodity in 2012.
U.S. Natural Gas Fund was down about 40% year to date heading into Thursday’s action. The fund holds total net assets of $809.1 million.
Natural gas futures are rising off decade lows as drillers cut production in response to lower prices and utilities use more of the cheap fuel to generate electricity, the Associated Press reported.
Futures trimmed their gains Thursday after a weekly government report showed inventories within expectations, MarketWatch reports.
U.S. Natural Gas Fund