Why UNG Is Up 15% Today

Natural gas has been one of the most difficult investments to predict through out 2012, as it started off the year on a horrific note. Though the commodity was able to gain steam in recent sessions, it has yet to establish any kind of meaningful trend upwards, as prices still remain depressed from a historical standpoint. One of the most popular ways for traders to access natural gas futures is by utilizing the United States Natural Gas Fund (UNG), one of the most popular ETFs in the world. The fund has just over $900 million in assets and trades nearly 10 million times each day, but this ETF made a huge buzz during trading today, as it posted massive gains [see also 25 Ways To Invest In Natural Gas].

UNG was able to gain nearly 15% for Thursday’s trading session, as traders set the fund on fire with abnormally high volumes to match the abnormally high gains. UNG has been known to move roughly 3% or 4% in one day, but a 15% movement is largely unheard of. With a number of investors betting against this ultra-popular fund, today’s gains come as a disappointment as well as a mystery to many. UNG’s big day started off with the weekly EIA Natural Gas Inventory Report, which is generally a large mover for the fund. The weekly report was expected to show NG stockpiles of 75 billion cubic feet (bcf), but inventories came in at 67 bcf instead, far lower than anyone expected [see also Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later].

As a result, UNG and natural gas alike spiked, as investors saw that demand for this sputtering commodity had picked up over the last week and that maybe we have underestimated our need for the fossil fuel. UNG responded with its best day of 2012 and its best session in recent memory, not to mention that it traded more than 2.5 times its daily volume. Although the EIA report was the culprit of UNG’s monster session, the trading fury also helped the ETF on its way to profitability, as a number of positions were shifted about in the fund. Be very wary of UNG in the coming days, as a massive spike like this is almost always followed by a falling out. Trade accordingly.

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Disclosure: No positions at time of writing.

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