Meet The Man Behind The Liquidating Hedge Fund That Blew Up The Gold Market

Tyler Durden's picture

Over the past several weeks there had been rumors that the reason for the precipitous drop in gold was primarily driven by a hedge fund liquidating its futures positions. This has now been confirmed: "Yeah, that was just me liquidating my spread position," Mr. Daniel Shak, [of SHK Asset Management] 51
years old, said in an interview. "I had a significant, fully margined
position. The dollar amount of the gold liquidation was very small, it
was just a lot of contracts." Of course in the extremely jittery gold market, the kind of persistent marginal gross selling of contracts was all that was needed to spook weak hands into a consistent dump of the precious metal, which as we pointed out was beyond overdone. Judging by this morning's jump in the PM complex, SHK's liquidation is now not only over but about to promptly reverse as daytrading momos realize they were duped by one single guy. Look for gold to resume its upward advance as investors realize that the gold dump was nothing more than an ongoing futures position liquidation.

More from the WSJ:

A huge trade by a tiny hedge fund has sent shudders through the gold market.

Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production.

But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.

As a result, the number of gold contracts on CME Group Inc.'s Comex division plunged more than 81,000, to about 500,000, the biggest single reduction ever. While his trade didn't account for all of the contracts, an average daily move is about 3,000 to 5,000 contracts.

That Mr. Shak and his firm, SHK Asset Management, could control one of the largest positions in the gold market underscores how leverage can enable investors to control huge positions in many commodity markets.

We wonder how authors Carloyn Cui and Greg Zuckerman would feel if they knew just how big JPM's positions are. On the other hand, there is nothing to worry about: after all the corrupt muppets at the CFTC have just made sure that Jamie Dimon's criminal syndicate will be allowed to toy with the gold market at will in perpetuity.

As for SHK Asset Management, RIP:

Mr. Shak said he quit the trade when he was 70% down. People close to the firm confirmed the loss was about $7 million.

Just over a week ago, he put his apartment on Manhattan's Fifth
Avenue up for sale with a price tag of $7.5 million. He said the sale
wasn't related to his losses.

And as we prdicted previously, the weak hands in gold's recentless surge saw this one-off liquidation event as something far more profound, and translated the sell off as a fundamental weakness in gold, despite attempts to disabuse them of this lunacy.

While the drop in contracts didn't appear to hurt gold prices, it caused
some panic in the market. Brokers said they fielded calls from clients
worried that a big trader may be dumping holdings. Monday, gold futures
rose slightly to $1,344.50 a troy ounce and settled at $1,318.40
Thursday. The front-month contract is down 7.3% from its record close on
Jan. 3.

And some more on the gold trade gone horribly wrong:

Mr. Shak's positions were extended as far as December 2015, according to exchange data.

"He just had too much position on," said a person who is familiar with his trades. "He didn't think he was flying naked the whole way."

A CME spokesman said he couldn't comment on specific trades.

Mr. Shak said the trade had been profitable for him for years, but it stopped working and the exchange kept raising his margin requirements, forcing him to put up more money. Mr. Shak said that when the exchange raised it by 25% Monday, he decided to cut his losses and end the trade.

Some Wall Street banks and gold producers were on the other side of the trade, according to people close to the matter.

"It was David against Goliath," Mr. Shak said, referring to his position in the market in relation to banks and the commodity exchange. "I just decided to get out; down 70% is better than down 100%."

He had worked as a floor trader at Comex for years before he set up his own fund in 2002. The firm suffered losses of about 12% in 2008, before rising 20% in 2009 and 100% last year, Mr. Shak said.

Mr. Shak, who lives in Las Vegas and also owns a home in the Hamptons on New York's Long Island, also is a competitive poker player and says he has won more than $2 million, including a $1 million win at the Aussie Millions in Melbourne, Australia, last year.

Mr. Shak said his decision to close his position wasn't related to the faulty trade, but rather was a "lifestyle decision."

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

Mr. Shak said he will return to trading in a few weeks, though perhaps not manage money for others.

"This is not career ending," he said. "I'm not stopping trading."

Oh yes you are.

Bottom line, M2 just surged by the highest amount ever, Bernake will never stop monetizing, and fiat is contiuing the race to the bottom. Most importantly for those with a trigger finger response time, the liquidation is now over. Keep a close eye out on the price of gold.

Note below what happens when a key selling catalyst is removed... or at least made apparent.

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DonnieD's picture

Is that Don Cheadle?

hedgeless_horseman's picture

Cute wife/girl friend.  I bet she kept some physical position.

dark pools of soros's picture

and she probably liquidates often....

OnTheFelt's picture

That's not his girlfriend....that's Annie Duke.  She is a professional poker player.  That picture was taken at the Aussie Millions poker tournament.

BTW - Annie Duke was was just recently exposed to be involved in a massive insider cheating scheme with Poker Stars.

KidDynamite's picture

I think you mean UltimateBet, not PokerStars, right?


Shak's wife  (perhaps Ex-wife, actually, I think) is Beth Shak  - she's google-able I'm sure.

OnTheFelt's picture

Yeah you're right, Ultimate Bet, my bad

Dismal Scientist's picture

Yep. Thats what happens when you star in a sequel, rather than the original. Iron Man 2 was a mistake...

Pladizow's picture

Year      Month of Gold low

2001         March/April

2002        Jan

2003       April

2004       May

2005       Feb

2006       March

2007       Jan

2008       Nov

2009       Jan

2010     Feb


So 9 out of the last 10 years gold hits its low by May.

And 7 out of the last 10 years it hits its low in the first quarter.


Fish Gone Bad's picture

Straight out of Hotel Rwanda.

Pegasus Muse's picture

Reading Adrian Douglas' comments over at LeMet tonight.  He believes this story concocted by WSJ is BS.


Everyone is happily touting this story to explain the 81,000 OI (Open Interest) cratering on Monday which was the biggest one day drop of OI in history. . NOT SO FAST. This is baloney in my opinion.

The last COT (Commitment of Traders) report shows total spreads in managed money were 63,507 contracts. This "Shak" dude is a money manager so how did he liquidate 81,000 contracts? The total reported spreads were 103,947…are we meant to believe that this one dufus from Las Vegas had 80% of all spread contracts!!??

The WSJ article just stinks. For example people don't say things like "Yeah, that was just me liquidating my spread position," Mr. Shak, 51, said in an interview. In the article it says he was down 70% but quotes him as follows: "I just chose to close, I didn't like my positions so I chose to liquidate, I wasn't forced. I was in the process of closing anyway."...You have to be kidding me!...70% down "he didn’t like his positions"!! That’s just the sort of thing an average Joe will say!

The Commodity Exchange Act provides anonymity for traders …we are still waiting for the investigation from 2008 in what happened in silver and who did what yet WSJ in a matter of days gets the name and all the trading info about the "Shak Attack". This is an early April Fool’s spoof and very conveniently put out to kill everyone’s curiosity…move along nothing to see here just one guy liquidating 81,000 spread contracts!

Let’s hear it for the CFTC and the gold cartel and Obama’s goal of more transparency!


youngman's picture

What is scary to me is a 10 million dollar fund...having a 850 million position in if something happens...could he cover....

HamyWanger's picture

Are you suggesting we should forbid this kind of leverage???

The cost to the global economy would be astronomical.

Levies are healthy and useful for the global economy and jobs creation.

Read Dr. Keynes or Dr. Krugman on this subject.

H. Perowne's picture

Almost got me, Hamy. Well played. The answer is print moar . . . what was the question again?

SheepDog-One's picture

Print more, as each new bundle of worthless FRN's means another country falls into riots and escaped leaders. Party on, Ben!

lizzy36's picture

Why no Harry, lets encourage this kind of leverage.

One $10m fund controlling 12% of the gold market. Yeah, that is going to end well.

See 2008 when the banks were levered on average 40x-50x. What the hell could go wrong indeed?

dark pools of soros's picture

yeah but it is all backed by 300 million future taxpayer payments..  that's some serious reserve

JW n FL's picture


i.knoknot's picture

yup, and i'm *certainly* teaching my kids how to bend-over and passively take it.

aren't you guys?

Manthong's picture

you mean 300 million future chop suey chefs.

Sean7k's picture

Leverage is a two edged sword: too little and price discovery is hampered, too much and markets can collapse on expectations and sell-offs.

When you referred to Dr. Keynes and Dr. Krugman, you forgot Dr. Pepper- they're a matching set.

firstdivision's picture

I would actually equate it to a single ended dildo.  You're either getting screwed, or doing the screwing.

Canuckistan Al's picture

More like Dr. Suess if you ask me.

i.knoknot's picture

you injure the good name of dr suess. i challenge you to a duel.

seriously, dr seuss will likely go down as one of the more prescient writers/communicators of our era.

  horton hears a who
  star-bellied sneeches

if only the above-mentioned drs had a tenth of his sense.

Common_Cents22's picture

30-40-150x leverage should only be left up to the pro's, like those phd's at JP, GS, LTCM etc...

shortus cynicus's picture

Just one explanation for new users.

Question: Dr. Wanger's answer was very, very, very funny, but notwithstanding got junked to death, why?

Answer: because he meant it seriously. We know, he or hes new reincarnation, doesn't understand his own jokes.

gold mining ceos are idiots's picture

It was a calendar spread. His position was not large net. He was probably short front, long back.

gold mining ceos are idiots's picture

It was a calendar spread. His position was not large net. He was probably short front, long back.

Ratscam's picture

any idea how an 85x leverage is possible with a 6% margin rate?

BearOfNH's picture

Spread margins are frequently lower than net position margins.


BearOfNH's picture

If you snoop around the CMEgroup website you'll see their exchange minimum 100 oz. gold contract has a $6700 initial margin, while a long-dated gold spread (say, 4/11 to 12/13) has a $338 initial margin.

So you can go long or short one GCJ1 by putting up maybe $7500. Or you can trade the GCJ1/GCZ3 spread for perhaps $400.

Your broker can demand more than exchange minimum and most do. But if they go apeshit on their customers, their customers will go elsewhere.

(The same is true of exchanges, as well. Hence regardless of what US laws you quote or wish for, the truth is that margins are ultimately set by the free market.)

emsolý's picture

borrowed funds in addition to the fund's capital and then use that as margin

edit: now that i see the response above, with lower margin requirement on spread bets,  i guess that answer is more plausible (but does not invalidate mine)

Math Man's picture

Left out of the Zerohedge article:  (from the WSJ article)

What Mr. Shak took on was a "spread trade," in which he was long and short gold contracts of various maturities.

It isn't an outright bet on gold prices, but rather on the degree of movement among different contracts. The fact that the sale came from a spread trader, rather than a gold holder, could put some investors' minds at ease.

The spread trade is irrelevant.  He was long AND short.

The REAL liquation has been coming from the ETFs.

Holdings at GLD have declined to levels not seen since last June.

54 tons out of GLD alone.  THIS MONTH.

That is 15% of all the gold bought by all the ETFs COMBINED last year.

Gold longs are lucky there is unrest in Egypt.

It's the only thing that can mop up the excess ETF supply.


HoofHearted's picture

Bullshit. People sold when they saw massive selling from one guy. This led to prices dropping, people getting nervous that it might be done for gold. People got out of their paper, the ETFs. Seems like a wall of worry to me....

i.knoknot's picture

it feels a little bit like the 'fat finger' excuse on that last flash-crash. i guess we've gotta have a reason, and 'there it is'...

hmmm. *both* long and short and losing 7 million? not very symmetrical, eh? i think he picked a team, even with his hedges. wrong team...

FWIW, if you read the GLD prospectus, you can pretty safely assume that there is no real gold at GLD, so the question becomes more along the lines of:

  why are they creating the appearance that they are dumping
  the (non-existent) metal, unless there's a big effort going on
  to tease the analysts and tank the market.

these numbers are merely a part of the game. "escher finance" (constant back-revision) is the other biggie.

GLD/SLV etc are brilliant mechanisms created for no other reason than to defer real demand with paper promises. pure counterfeit. and now there's a platinum ETF. surprised? take delivery, friends. take delivery.

BTW, your point about egypt's serendipitous timing is spot on.

as per lizzie, i also find it unsettling that a leveraged $10mm fund can knock the gold market that hard. imagine of a day's worth of the FED printing were worked in the same manner...


knukles's picture

"The dollar amount of the gold liquidation was very small, it was just a lot of contracts."


mogul rider's picture

I'd like to personally thank this idiot, I got the Precious cheaper, much cheaper. Who is the next idiot to step up?

C'mon shitheads leverage it , leverage it. c'mon!!!!

Brang it on!!!!

Jesus - there can't be a global conspiracy to rule over us, these shitheads are too stupid

i.knoknot's picture

re: the shitheads...

they've got tenacity (and congress :^). impressive bastards.

lsbumblebee's picture

Greg. Any relation to Mort? Gotta be.

bernorange's picture

Political instability spreading in the middle east... bullish for PMs?

Common_Cents22's picture

yeah, trapped with his $5billion return in 2010.

gold mining ceos are idiots's picture

So let's say he was 70k of the liquidation. What does that do to the over owned theory?

This one clown controlled 12% of the open interest?

That strike anyone as odd? 

NOTW777's picture

not believable. part of the story is missing.

remember blame waddell and reed

Ratscam's picture

sounds fishy. Any 1% down move would have caused a margin call.


Bicycle Repairman's picture

I call complete BS on the story.  Some two-bit gambler in the corner of the globe can crash the gold market?  I think that someone out there would like PM investors to believe that the gold market is that unstable.  BS.

Oh regional Indian's picture

Crazy. 10 Mil and such an impact. 

Only in these times.



slow_roast's picture

This is the most interesting ZH article I've seen in a long time...and that says a lot because they're all amazing.  I can't believe the leverage allowed by suh a small firm.  Did the markets learn nothing from LTCM?