Investment markets – Natural Gas Revisited

I last wrote about this on 28 October 2013 (see earlier post).  The chart, below, shows the last 6 months of UNG which aims to track the price of US Natural Gas.

You can see how it has shot up since early November.  Indeed, on Friday, it soared nearly 8%.

UNG Daily I have been musing that a decision should be made at around $25, if we got there (which was likely).  The below chart suggests that the black lines show a price channel since early 2012.  As you can see, the price has risen to the top line and fallen back from it 4 times.  Similarly, the price has fallen to the bottom and bounced 4 times.
Note that the channel is gently rising which is positive.
So, after the rally these last 2 months and, in particular the large rise on Friday, the price is very close to the top of the channel.

If the price rises above the top line and appears to be sustainable, the sky’s the limit.
On the other hand, the upper line may be the top (or A top) and it may head back down to the lower line at $17-18 as it has done several times.  It could even fall through but this is not likely.

UNGIt remains our view that the $25 or so level will be breached at some point.

I remind you the price was $515 in 2008 and is, even now, not even $25 – after a 60% rise since May 2012.  We remain intrigued as to whether or not UNG will rise strongly for years.  It can do and probably it will do, given the encouraging indicators.  But, as ever, on verra.

If it rises to $30 that would be a 100% rise from the bottom yet the price would still be over 90% down on the 2008 high point.

I should add there is another potential scenario:  The price could rise above the upper line and immediately fall back under – which would of course not be a positive sign for the direction of the price.

I reiterate our view that this has the potential to become an enormously profitable investment over time.  It needs to prove the potential.

Those seeking to learn more might find the following economics/investing article/blogpost and Engineering & Technology Magazine debate useful.

For the investment:

For and Against fracking:

Nothing in this blog may be deemed as advice.  The author of this blog and/or his company will not be liable for losses under any circumstances as a result of taking or not taking action due to anything written in this blog.

Copyright Jonathan Davis 2014

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3 Responses to Investment markets – Natural Gas Revisited

  1. Andrew says:

    I think I recall that this one, unlike most ETFs, is a closed-ended rather than open-ended fund, so instead of precisely tracking the price of gas it’s influenced by investors’ current bullishness or bearishness towards the commodity (like an Investment Trust tending to have a significant discount or premium)

    Also, Natural Gas as an individual commodity has sadly been perhaps the most negatively impacted by contango on the futures exchange (i.e. the fund loses some of its core holding on a continuing monthly basis as it jettisons its existing holdings and then buys replacement futures contracts)

    I’m not saying the price won’t continue to go up, just that a unit of UNG now presumably contains far, far less ‘gas’, as it were, than it did back in 2008, so a direct comparison between today’s price and its price back in 2008 is questionable

    As an aside, why can’t anybody seem to create an ETF that will accurately track the price of a commodity without losses via contango? It’s the same with Oil, only the effects of the monthly reductions seem to be far less for that than for N Gas. Whole idea seems designed to fleece investors

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