Natural Gas Falls While Gold Surges

U.S. Natural Gas(UNG Quote) tumbled 4.3% today, but its underlying value slid 8%, pushing the premium back to 17%. I explicitly warned of this situation last week in "Natural Gas Heads for Super Contango." The difference between the October 2009 and November 2009 contracts on NYMEX is now a gigantic 46%.

First Trust ISE-Revere Natural Gas(FCG Quote) gained 0.1% today, mild but far better than UNG. Meanwhile, JPMorgan Alerian MLP Index ETN(AMJ Quote) gained 0.6%.

Beside the collapsing natural gas market, gold remains a top story. A mini-panic surrounds the rapid rise in the metal. Some investors are asking if it is the harbinger of an international devaluation of the dollar. Or are investors worried that a major bank could fail? There are also panicked buyers who don't want to miss out on a rally.

The last point makes me question whether this isn't a short-term run. We saw AIG(AIG Quote) go crazy in August, up 100% in a week, followed by rapid advances in Fannie Mae(FNM Quote) and Freddie Mac(FRE Quote). At the tail-end even Lehman Brothers got into the action. These shares are moving 10% a day on average with AIG up 10% today, Fannie Mae up 20% and Freddie Mac up 14%.

The rest of the market was flat today, save for some buying action at the close. There are big gains in the iPath Lead ETN(LD Quote), up 9%, while smaller but decent advances came for Market Vectors Coal(KOL Quote), Claymore/AlphaShares China Small Cap(HAO Quote), iShares Belgium(EWK Quote), iPath Tin ETN(JJT Quote) and Market Vectors Solar(KWT Quote). However, for the most part the leaders are littered with leveraged ETFs.

The one solid multiday trend continues to be gold, with PowerShares DB U.S. Dollar Bullish(UUP Quote) getting an honorable mention for reversing losses and closing up 0.1%. Market Vectors Gold Miners(GDX Quote) was up 5.3% while iShares COMEX Gold(IAU Quote) and SPDR Gold Shares(GLD Quote) increased 1.3%. iShares Silver Trust(SLV Quote) climbed 4.3%.

I lean toward this being similar to what we're seeing in AIG and Fannie Mae. Traders are looking for someplace to go in a flat market and they're finding it in gold and gold miners. On Aug. 3, the S&P 500 closed at 1002.63; today, one month later to the day, it closed at 1003.24.

A major move in gold in either direction will not leave stocks or bonds untouched. If this is the start of something big, there will be follow-up effects. Otherwise, traders should enjoy this while it lasts.