Hedge Fund SHK Liquidates, Rattles Gold Market

Jan 31 2011 | 1:41am ET

The demise of one small hedge fund roiled the gold market on Friday.

SHK Asset Management founder Daniel Shak decided to pull the plug on his fund and its sole investment: spread trades on Comex gold futures. While the firm managed just $10 million before gold's recent decline, SHK held $850 million worth of gold contracts. Dumping them last week led to the largest single drop in the number of contracts on the Comex ever.

"Yeah, that was just me liquidating my spread position," Shak told The Wall Street Journal. "I had a significant, fully-margined position. The dollar amount of the gold liquidation was very small, it was just a lot of contracts."

According to the Journal, gold's troubles over the last several weeks led to a 70% loss for SHK. But Shak said the big drop wasn't the reason he's closing his fund.

"I just chose to close," he said. "I didn't like my positions so I chose to close; I wasn't forced. I was in the process of closing anyway."

Still, Shak admitted, "down 70% is better than down 100%," and noted that Comex's continuing increases in his margin requirements were a factor. Last Monday, Comex raised his margin requirements by 25%.

Shak also denied that his decision last week to list his Manhattan apartment had anything to do with his losses. And he said he would begin trading again in a few weeks, although he did not say that he would begin managing outside money once again.

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