Natural Gas Falls While Gold Surges

U.S. Natural Gas ( UNG) 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) gained 0.1% today, mild but far better than UNG. Meanwhile, JPMorgan Alerian MLP Index ETN ( AMJ) 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) 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), up 9%, while smaller but decent advances came for Market Vectors Coal ( KOL), Claymore/AlphaShares China Small Cap ( HAO), iShares Belgium ( EWK), iPath Tin ETN ( JJT) 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) getting an honorable mention for reversing losses and closing up 0.1%. Market Vectors Gold Miners ( GDX) was up 5.3% while iShares COMEX Gold ( IAU) and SPDR Gold Shares ( GLD) increased 1.3%. iShares Silver Trust ( SLV) 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.