Natural Gas ETFs Jump on Rebound

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NEW YORK (TheStreet) -- Natural gas prices rebounded this week, climbing 30% after hitting a seven-year low a week earlier. Exchange traded funds that invest in the commodity also rallied.

The two best-performing funds this week through Thursday, the iPath Dow Jones-UBS Natural Gas Total Return Subindex ETN(GAZ) and the United States Natural Gas Fund(UNG), catapulted 25% and 24%, respectively.

There's a killing to be made in natural gas over the next year, but it will be risky. Natural gas futures for January 2010 delivery and later are selling for $5.35 per million British thermal units, double Thursday's spot price of $2.68.

Bullish investors are betting an economic recovery plus continued dollar weakness will make commodities like natural gas a good hedge against inflation.

Qatar is boosting production of liquefied natural gas by 7.8 million tons to 54 million tons a year, with plans to expand to 77 million tons annually by 2011. With storage facilities in U.S. and U.K. filled to capacity, the increase could cause a glut that wouldn't bode well for a sustained rally.

Two ETFs that target solar stocks also shined this week: the Claymore/MAC Global Solar Energy Index ETF(TAN), which rose 17%; and the Market Vectors Solar Energy ETF(KWT), up 15%.

Shares of First Solar(FSLR), the Claymore fund's largest holding, jumped 17% after the company detailed its plan to build a 2-gigawatt solar farm in Inner Mongolia for the Chinese government. The company won't be alone there. Canadian Solar(CSIQ), whose shares rose 19%, produces 500 megawatts of power in the region, which is part of China's northern border. Local rival Solarfun Power Holdings(SOLF), which advanced 23%, also plans to generate 600 megawatts from two power projects.