Here's an idea if you are worried about your heating bills this winter. The price of natural gas is crashing. The price decreases last week continued a down trend that's gone on for six months. Why? The economic downturn slows demand for gas and many companies are announcing layoffs and closing plants around the country. Reduced prices for natural gas are also a result of growing capacity in the U.S. because of increases in production at new fields. Natural gas prices are at multi-year lows falling from 65% from more than $13.31 per MMBtu (the way gas is measured) in July 2008 to under $5 -- the lowest since October 13, 2006.United States Natural Gas (NYSE: UNG) is an exchange-traded fund (ETF) that reflects the price of natural gas in the United States. UNG attempts to mirror the performance, net expenses, of natural gas at the Henry Hub, Louisiana.
Natural Gas is one of the most important physical commodities for the world's economy. Natural Gas futures are very actively traded and are the primary U.S. benchmark for natural gas prices. With an investment in UNG you get the convenience of an ETF and the commodity-like exposure without using a traditional commodity futures account.
UNG's portfolio contains listed natural gas futures contracts in addition to forwards and swap contracts all related to the natural gas industry. Currently UNG is only charging 0.60% to routinely analyze and purchase natural gas futures contracts traded on the New York Mercantile Exchange.
If you take the money you'll spend heating your home for the next year and buy shares of UNG with that amount, you'll effectively "lock in" today's prices for gas. If gas goes up in price, your investment in UNG will rise and give you extra money to pay your increased heating bills. But if gas prices continue to fall, then you will lose on this trade. It's anyone's guess which way gas prices are going, but they seem to have taken a tremendous fall and could be ready to rise again.
Mitch Tuchman founded MarketRiders, an investment website teaching individuals how to save on fees and be their own investment advisor using low cost ETFs and asset allocation.
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