Could the industry’s run be winding down? A poor economy, very low natural gas prices and lower export demand have all contributed to the diminished total demand for coal, according to The Business Insider. Additionally, producers failed to match the market with production cuts and inventories are estimated to stand at a minimum of 50 million tons of excess inventory in the United States.

Nevertheless, coal equities have done quite well for the year, with coal companies doubling or tripling off spring lows. The industry is currently trying to salvage revenue by drastically cutting production and an optimistic forecast puts the resolution of the glut by mid-2010.

A heavier hand by federal regulators has improved miner safety, but the high costs attached to the regulations has put many small companies out of business in Central Appalachia. The Environmental Protection Agency is also scrutinizing mine permits, which will likely raise production costs and restrain supply in the future. (Why Coal ETFs?)

Meanwhile, coal ETFs could be adding a new holding if Rio Tinto’s (NYSE: RTP) IPO of its U.S. coal business, Cloud Peak (NYSE: CLD), goes through, Benzinga reports.

For more information on coal, visit our coal category.

• Market Vectors Coal ETF (NYSEArca: KOL): which is up 133.1% year-to-date

• PowerShares Global Coal Portfolio (NASDAQ: PKOL): which is up 125.8% year-to-date.

Max Chen contributed to this article.

One of the questions it comes down to is whether you prefer active or passive management. The differences between mutual funds and ETFs still exist when considering funds that cover the commodities space. (Why mutual funds want in on ETFs).

Overall, passive ETFs cost less than active mutual funds, on average. ETFs also trade all day on an exchange like a stock; mutual funds trade just once. (What will it take for ETFs to overtake mutual funds?)

Don Dion for TheStreet outlines a few of the differences:

Equities-based funds: These ETFs and mutual funds track the stocks of commodity producers. Rather than tracking the physical commodities themselves, these funds track companies that are involved in the commodities business. Basically, with an ETF the fees are lower, there’s freedom of intraday trading and the ease of knowing the holdings at all times. While some ETFs and mutual funds may share the same components, they differ in fees, size and track record.

Futures-based funds: ETFs and mutual funds that hold futures are a more pure play on commodities than their equity-based brethren. They also provide investors exposure to the prices of energy, livestock, agricultural and metals futures. The limitations imposed by the Commodity Futures Trading Commission (CFTC) is expected to set limits on the number of futures contracts that both mutual funds and ETFs can hold. Major changes in these funds could potentially result in higher fees, which are ultimately passed down to shareholders.

The cost-effective structure of ETFs has helped to make these products affordable competitors in the commodity space. Also, ETFs have given traders more adaptability because of their liquidity and tradability.

For more stories about mutual funds, visit our mutual fund category.

According to tax code, gold, silver and precious metals receive special treatment – the IRS views them as “collectibles” rather than capital assets. They don’t qualify for the maximum 15% tax rate on long-term capital gains. (Will the gold rally last?)

Bob Carlson for Barron’s reports that gains on the sale of gold and silver investments, including gold- and silver-backed ETFs, and gold bullion and coins (except certain U.S.-issued coins), are taxed at a maximum rate of 28% when such investments have been held for more than a year. When they are held for less than one year, gains are taxed as regular income.(Other metals to play besides gold and silver.)

Here are some other facts about precious metals ETFs that Carlson notes:

• Precious metals ETFs are organized as grantor trusts. Investors in an ETF are treated as owning undivided interests in the metal owned by the fund. When an investor sells shares in the ETF, the tax code treats that investor as having sold a share of the metal backing the fund. Thus, the investor is subject to the maximum tax on collectibles.
• If the ETF sells some of its gold or silver, as funds typically do to pay expenses, including management fees, then gains or losses on such sales flow through to the fund’s investors, though they receive no cash distribution.
• Investors aren’t allowed to own collectibles in Individual Retirement Arrangements, or IRAs, and other self-directed retirement accounts, including 401(k) plans. When gold and silver are purchased for such accounts, an amount equal to the cost of acquiring the collectible is treated as a distribution to the owner. Rather, it is included in gross income and taxed at ordinary rates, although an additional 10% penalty might apply if the owner is under age 59½.
• Evidently, these rules do not apply when gold or silver is bought for a retirement account through an ETF. Retirement accounts are treated as having purchased fund shares, not the collectibles held by a fund. It is not treated as a distribution to the owner.

Note that we’re not tax professionals, and you should call your tax consultant for specific advice.

For more stories about precious metals, visit our precious metals category. To get prepared for April 15, visit our tax category.

Lara Crigger for IndexUniverse caught up with John T. Hyland, chief investment officer and portfolio manager of U.S. Commodity Funds, to talk about the regulatory impact on commodity exchanges, implications of the Saudis’ switch to the Argus Sour Crude Index and the possible move away from U.S.-centric energy ETFs.

Hyland states that the allegations that United States Natural Gas (NYSEArca: UNG) and United States Oil (NYSEArca: USO) caused last year’s extreme volatility in energy prices is unfounded. Critics presumed it was all because of speculators, but it was only opinion. In reality, when oil prices increased, USO’s number of contracts decreased, and vice versa. Investors tended to be net buyers when prices dropped, or the reverse when prices increased. (Natural gas and oil ETFs remain popular).

“Regulators are evolving their thoughts,” says Hyland. If enough regulation persists, investors could move off-exchange and regulators would have to make enough changes to bring back investors.

Saudi Arabia announced its intent to drop the WTI Index in favor of the Argus Sour Crude Index. Hyland sees that the NYMEX and ICE will both contend for the majority of the new index. It is still up in the air which exchange will attract more market makers and traders. U.S. Commodity Funds is still weighing the possible benefits of launching a new ETF based on the index. (Middle East: The next big growth spot?)

The move by the Saudis could also open up the market to additional pricing benchmarks. All that will decide the outcome is the costs associated with the different areas of the world.

Hyland also thinks that ETFs will be become less U.S.-centric and move toward emerging countries, such as China and India. The new ETF products will be assembled and weighed to cater to demand in these other countries.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

Gold futures hit new record highs in trading today, soaring above $1,150 an ounce on weakness in the dollar and gold’s appeal as an “alternative currency.” Matt Whittaker for The Wall Street Journal says that in additional to seasonal jewelry buying, gold’s demand is feeding on itself. As the price goes higher, it entices more investors to buy bars and coins for themselves. (Read about the new gold miners ETF).

Where gold goes from here is anyone’s prediction.

The case for a correction: some analysts think gold is overbought, and that a correction could be just around the corner. At the moment, says Rediff Business, gold is getting support from a weak dollar.

The case for more: John Wasiliev for The Age reports that there are numerous near-term factors supporting the price of gold, he says, all underpinned by a volatile but generally depreciating U.S. dollar. Chinese and Indian investors are also creating plenty of demand for the precious metal. (Other reasons gold prices could inch higher yet.)

For now, investors are still cautious about another market pullback. This trepidation is giving  reinforcement to related gold investments. But if a correction shows up anytime soon, have an exit strategy at the ready. Our strategy is to use the 200-day moving average; if gold dips below this line, it’s a sell signal.  (How to follow trends).

The largest gold ETF, SPDR Gold Shares (NTSEArca: GLD) now has holdings at 1,113.833 tonnes, down from a record 1,134.03 tonnes in June, reports Chikako Mogi for Reuters.

For more stories about gold, visit our gold category.

• iShares COMEX Gold Trust (NYSEArca: IAU): up 29.3% year-to-date

• ETFS Physical Swiss Gold Trust (NYSEArca:SGOL): up 15.3% since inception

• SPDR Gold Shares (NYSEArca: GLD): up 29.4% year-to-date

For full disclosure, Tom Lydon’s clients own shares of GLD.

Equities slid on Wednesday morning as an unexpected drop in home construction raised concerns about the pace of the economy’s recovery, say Stephen Bernard and Tim Paradis for the Associated Press. The U.S. Commerce Department reported that the construction of homes and apartments as well as building permits, a key gauge of future activity, fell well short of expectations held by economists. The puts into question Wall Street’s belief in a V-shaped recovery. iShares Dow Jones U.S. Home Construction Index (NYSEArca: ITB) is trading flat this morning.

Inflation figures were also a bit of a surprise to the markets. U.S. inflation accelerated in October as energy prices rose again and car prices rose at the fastest pace since the early 1980s, reports Rex Nutting for MarketWatch. The consumer price index (CPI) rose a seasonally adjusted 0.3% in October, while the core CPI rate, which excludes food and energy, rose by 0.2%.

Meanwhile, gold hit another fresh record high – near $1150 an ounce – in trading today. Another dip in the value of the U.S. dollar added to momentum buying as prices broke through key technical resistance levels, says Jan Harvey for Reuters. The gold market is being underpinned by fresh interest in gold from central banks after a recent major bullion purchase from India and smaller purchases by the central banks of Sri Lanka and Mauritius. The SPDR Gold Shares Trust ETF (NYSE: GLD) is currently trading up by a half percent at $112.50 a share. (For more stories on gold, see our gold category).

In an interesting development, Goldman Sachs (NYSE: GS) is attempting to spruce up their image and generate some goodwill in this holiday season. Goldman is trying a new tack to improve its public image, writes Graham Bowley for The New York Times. The company is apologizing for past mistakes and sharing some of its riches. It will spend $500 million to help thousands of small businesses recover from the recession. (For more stories on the financial sector, visit our financial category).

Tony D’Altorio contributed to this article.

The U.S. 12 Month Natural Gas Fund (NYSEArca: UNL) has gotten the green light from regulators to issue about 30 million shares, which will purchase natural gas futures for delivery over the next 12 months. Asjylyn Loder for Bloomberg reports that it will sell the near-month contract as it approaches expiration and replace it with a contract for delivery in 12 months.

The ETF comes from U.S. Commodity Funds LLC, which also manages the popular $3.5-billion U.S. Natural Gas Fund (NYSEArca: UNG) and the $1.96-billion U.S. Oil Fund (NYSEArca: USO). (Natural gas ETF shifts strategy).

UNG differs from UNL in that UNG buys the near-month contract, then sells it each month as it nears expiration and buys the next month.

In terms of natural gas prices and futures, what’s the difference between UNG and UNL? UNL can help mitigate some of the impact of contango, which is when the front-month contract is higher priced than the contracts further out. By using the 12-month approach, the impact of contango is, on average, about two-thirds less than it would be in a fund that simply uses a front-month approach.

Which fund an investor chooses depends on what’s trying to be accomplished. When the markets are in contango, it’s no guarantee that a 12-month fund would do better. On the other hand, it could be beneficial for investors  looking to lessen the impact contango can have. On the other hand, if someone is trading frequently and heavily, there might not be as much concern about contango. As the energy markets shift, it could be more advantageous to be in one fund over another – but it’s no guarantee in the volatile energy space. Many have learned that a single hurricane can change conditions rapidly.

Natural gas futures were wavering today. Below-normal temperatures in the Midwest and Northeast are anticipated to boost natural gas demand, but there’s only been modest growth in industrial production, reports Christine Buurma for Dow Jones Newswires. Until today, many traders had been betting that natural gas prices would fall in the coming months.

For more stories about natural gas, visit our natural gas category.

According to this year’s 2009 volume of the International Energy Agency’s (IEA) World Energy Outlook, the recession and financial crisis provided us a small respite from our insatiable fossil fuel demand and rising oil prices, remarks Dave Fessler for Investment U. However, the break in oil prices is forecast to end this year and a new growth pattern may start. The IEA projects that world consumption will grow 1% per year till 2030. (Oil ETFs are not over yet).

Possible shortfalls in exploration and production of oil as a result of this year’s low oil prices, coupled with increases in future demand could likely skyrocket oil prices in the future, says the IEA. (How to play world’s hunger for oil).

As stated in the IEA’s World Energy Outlook, “any prolonged investment downturn [in oil exploration and production] threatens to constrain capacity growth, eventually risking a shortfall in supply. This could lead to a renewed surge in prices a few years down the line, when demand is likely to be recovering and become a constraint on global economic growth.”

The oil industry is finding oil harder to come by and they need to drill deeper and deeper to locate oil pockets, which translates into  higher costs. Now that oil is hovering around $80 a barrel and projections put oil above $100 a barrel in the not-so-distant future, oil companies are only just beginning to turn back to exploration and production.

For more information on oil exploration, visit our oil & gas exploration category. For more information on investing with energy using ETFs, sign up for our new special report.

• iShares Dow Jones U.S. Oil & Gas Exploration (NYSEArca: IEO): up 36.3% year-to-date

• SPDR S&P Oil & Gas Exploration & Production (NYSEArca: XOP): up 36.5% year-to-date

• PowerShares Dynamic Oil & Gas Services (NYSEArca: PXJ): up 56.5% year-to-date
  

• United States Oil (NYSEArca: USO): up 21.7% year-to-date

• PowerShares DB Oil (NYSEArca: DBO): up 44.6% year-to-date

Max Chen contributed to this article.

The spike in investor interest in funds like United States Natural Gas (NYSEArca: UNG), PowerShares DB Commodity Index Fund (NYSEArca: DBC), PowerShares DB Agriculture Fund (NYSEArca: DBA) has resulted in creation halts and strategy reconstruction as the Commodity Futures Trading Commision (CFTC) scrutinizes the industry, writes Don Dion for TheStreet. (More on the CFTC’s commodity limits).

The iPath Dow Jones AIG Platinum TR Sub Index (NYSEArca: PGM) recently had to halt creation in order to remain within position limits. (Regulation hits platinum ETN). And most recently, PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) had to rush to get  approval to create new shares as trading volume suddenly picked up. (Bullish dollar ETF granted new shares).

Traditional ETFs track underlying indexes, which is made possible through the share creation and redemption process. When the creation process is halted, it creates premiums to an ETF’s underlying value. The result is an environment good for shareholders but bad for investors chasing the trend.

As an investor, you should be aware of when an ETF’s share creation has been suspended and understand that if a futures-based ETF runs out of shares, this could happen. If you’re already holding such an ETF, monitor your funds to be sure that all is running smoothly. The risk of holding a fund with suspended share creation is that when normal trading resumes, losses could be incurred as the premium disappears.

For more information on ETF trading, visit our ETF 101 category.

Max Chen contributed to this article.

Reasons for gold’s climb to record prices haven’t changed: a weaker dollar, inflation worries and mixed investor sentiment seem to rule the markets lately. But as gold marches forward, other metals have hitched a ride on its coattails. Platinum and palladium have hit 12-month highs, and analysts think it could continue if gold remains strong. (Copper should also enjoy higher prices despite the overstock supply).

Devon Maylie for The Wall Street Journal reports that platinum and palladium are both industrial and precious metals. As a result, they’re benefiting from hedging as well as hopes that industrial activity will take off in 2010. (Learn about the “other” metals). Silver, another precious metal with industrial applications, has also been gaining strength, handily outperforming gold year-to-date. (Six benefits of silver investing).

Copper prices have also rallied to a 13-month high on a sliding dollar and Japan’s economic expansion. Copper made up 54% of the total value of Chile’s exports last month, up from 42% the same time last year, reports Drew Benson for Bloomberg.

Spot gold hit a record high of $1,134.55 a troy ounce Monday, building on the gains it has posted over the past weeks.

For more stories about commodity ETFs, visit our commodity ETFs category.

If you don’t want gold, where can you look? Among the growing number of options include:

• iShares Silver Trust (NYSEArca: SLV): up 53.1% year-to-date

• E-TRACS UBS Long Platinum ETN (NYSEArca: PTM): up 47.6% year-to-date

http://online.wsj.com/article/SB10001424052748704431804574539160726487446.html

• ETFS Physical Silver Shares (NYSEArca: SIVR): up 15.9% in the last three months

• iPath DJ AIG Copper TR Sub-Index ETN (NYSEArca: JJC): up 109.3% year-to-date