Natural gas prices rallied this week but an exchange traded note designed to track futures contracts actually ended the week with a steep loss.

The iPath Dow Jones-UBS Natural Gas ETN (NYSEArca: GAZ) was on track for a weekly loss of 5.8% in afternoon trading Friday, according to StockCharts.

Meanwhile, U.S. Natural Gas Fund (NYSEArca: UNG), an exchange traded fund, was set for a 4% gain this week. The ETF has encountered some resistance at the 50-day average, however.

Why are the exchange traded products diverging? The answer has to do with the premium to indicative value that has built up in GAZ. As we reported Monday, the natural gas ETN was trading at a premium of more than 100% to indicative value, setting investors up for potential losses unrelated to the movement of the commodity’s price. [GAZ Premium]

GAZ is trading at a premium because its share price is being determined by demand for the ETN, in addition to movement in natural gas futures. Barclays, the issuer for GAZ, suspended the creation of new shares in August 2009. At the time, the bank said the suspension was “temporary.”

On Friday afternoon, GAZ was trading at a premium of about 84% to indicative value

The ETN moved in the opposite direction of natural gas prices this week as some of its premium was unwound.

UNG, the ETF, has done a better job tracking natural gas futures this week.

The commodity’s rebound from a multiyear low has triggered speculation the brutal bear market for natural gas is nearing an end.

UNG has rallied about 20% from its recent low. [Natural Gas ETF Recovers]