Jan 28 (Reuters) - Hedge fund SHK Asset Management liquidated a U.S. gold futures position this week valued at over $850 million, more than 10 percent of the main U.S. futures market, the Wall Street Journal reported on Friday.

As a result of the move, which was made on Monday, the number of gold contracts on CME Group Inc.'s Comex division plunged by more than 81,000, to about 500,000, in their biggest single fall ever, the WSJ reported. It said an average daily move is about 3,000 to 5,000 contracts.

Daniel Shak, who runs the $10 million fund, told the newspaper that 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.

Shak said that when the exchange raised it by 25 percent on Monday, he decided to cut his losses and end the trade, the newspaper said.

(Reporting by Jan Harvey; Editing by Jason N

The story looks bogus to me as the “transaction” occurred last Monday. You will note that the spreading liquidated 81000 contracts.

Now I shall provide to you the COT report which includes the uneconomic spreading:

Posted Friday, 21 January 2011 | Share this article | Source: GoldSeek.com

Let us begin:

You will see that those large speculators that have been long increased those positions by a very healthy 3071 contracts.

Those that have been short, added a massive 15,450 contracts to their already short position. They thus provided a huge bulk of the unbacked paper.

AND NOW FOR OUR SPREADERS:

PLEASE NOTE: A LOSS OF ONLY 1210 CONTRACTS. (This is as of Tuesday which thus includes Monday’s totals)

The story that this guy SHAK liquidated 81000 contracts on Monday is totally bogus as the figures do not suggest this transaction.

To boot: the entire spreading category has a total 81,307 contracts. If the SHAK transaction was true, then the entire spreading position would have been liquidated.