Natural Gas Falls While Gold Surges

As UNG trades at a premium of 17% again, worry surround the rapid rise.
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U.S. Natural Gas (UNG) - Get Report 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) - Get Report

gained 0.1% today, mild but far better than UNG. Meanwhile,

JPMorgan Alerian MLP Index ETN

(AMJ) - Get Report

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) - Get Report

go crazy in August, up 100% in a week, followed by rapid advances in

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

. 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) - Get Report

, up 9%, while smaller but decent advances came for

Market Vectors Coal

(KOL) - Get Report

,

Claymore/AlphaShares China Small Cap

(HAO) - Get Report

,

iShares Belgium

(EWK) - Get Report

,

iPath Tin ETN

(JJT) - Get Report

and

Market Vectors Solar

(KWT)

. 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) - Get Report

getting an honorable mention for reversing losses and closing up 0.1%.

Market Vectors Gold Miners

(GDX) - Get Report

was up 5.3% while

iShares COMEX Gold

(IAU) - Get Report

and

SPDR Gold Shares

(GLD) - Get Report

increased 1.3%.

iShares Silver Trust

(SLV) - Get Report

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.

At the time of publication, Dion was long IAU and GDX.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.