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Gold traded in a wide range of more than $100 an ounce on Friday, capping a volatile week with gains of only 1.3 percent even as global stock markets lost heavily.

Bullion in overnight trade touched a 2-1/2 month high of $931 as a slide in the global equity markets sent investors racing to a safe haven from the financial crisis.

However, even gold could not withstand relentless selling across all asset classes as investors sought cash to cover margin calls amid steep losses in stocks. It hit a low of

$823.50.

Spot gold dropped to $845.80 at 2:50 p.m. EDT (1850 GMT), down 7.2 percent from Thursday’s nominal close at $911.50.

“It’s total panic. People are so scared that they are looking to liquidate everything that has cash value and to stay away from everything,” said Bruce Dunn, vice president of New Jersey-based Auramet Trading.

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury’s $700 billion Troubled Asset Relief Program.

The Federal Housing Finance Agency, which placed the two companies in conservatorship on Sept. 7, directed them last month to start increasing their purchases of loans and mortgage-backed securities as the Treasury seeks to absorb underperforming and illiquid assets from financial companies.

“For now, they’re under conservatorship and they have to be used to keep the flow of capital going to the housing market,” former Treasury Secretary Lawrence Summers said in an interview on Bloomberg Television’s “Conversations with Judy Woodruff.” “They’re important to maintaining the flow of government finance” and need to be used actively, he said.

Adding underperforming assets to Fannie and Freddie’s combined $1.52 trillion mortgage portfolios would come at a time when the two mortgage-finance companies already hold as much as $210 billion of bad debt that may be eligible itself for the Treasury’s relief program, their regulator said Oct. 5.

The International Energy Agency slashed its estimate of worldwide 2008 oil demand growth to its lowest rate since 1993, and lowered its 2009 growth forecast by 190,000 barrels per day.

U.S. crude plunged $8.89 to settle at $77.70 a barrel, the lowest levels since September 10, 2007, and down 17 percent from last Friday’s settlement. London Brent crude settled down $8.57 at $74.09 a barrel.

“At this point, margin calls are certainly a pressure factor in the crude oil market,” said Jim Wyckoff, president of Jimwyckoff.com, which provides commodities markets commentary.

The Treasury is “working to develop a standardized program that is open to a broad array of financial institutions,” Paulson said at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.

The injection of equity would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades. Paulson declined to give a timetable or details about the purchases, and signaled that markets may be in for turmoil ahead.

“We’re going to do it as soon as we can do it and do it properly and do it effectively and right,” Paulson said. “Trust me, we are not wasting time; people are working around the clock to deal with this.”

A drop in home prices and illiquid securities tied to mortgages led to the collapse of some of the country’s biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.

“The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,” Berlusconi said today after a Cabinet meeting in Naples, Italy. A solution to the financial crisis “can’t just be for one country, or even just for Europe, but global.”

The Dow Jones Industrial Average fell as much 8.1 percent in early trading and pared most of those losses after Berlusconi’s remarks. The Dow was down 0.5 percent to 8540.52 at 10:10 in New York.

Group of Seven finance ministers and central bankers are meeting in Washington today, and will stay in town for the International Monetary Fund and World Bank meetings this weekend. European Union leaders may gather in Paris on Oct. 12, three days before a scheduled summit in Brussels, Berlusconi said today, while Group of Eight leaders may hold a meeting on the crisis “in coming days,” he said.

Berlusconi didn’t give any details about what kind of rules leaders were looking to change, except to say that leaders are “talking about a new Bretton Woods.”

Analysts have predicted the Lehman settlement will trigger gross payouts of $350bn to $400bn. Meanwhile, the recent rash of Icelandic banking failures could bring further derivative payouts estimated at $200bn in the coming weeks.

No one is sure where the heaviest losses will be felt — and net losses are expected to be much lower than the headline payout estimates — but there remain fears the recent run of large-scale defaults may leave many hedge funds with payout demands they cannot meet. This, in turn, will force writedowns for those failing to receive payouts, many of them major banks.

Sandy Chen, a banking analyst at Panmure Gordon, this morning described the prospect of mass payment failures as “key drivers of the current apocalypse”. He pointed to Barclays and Royal Bank of Scotland as being most exposed among the UK banks to the credit derivative market. Both have bought and sold, in roughly equal measure, £2.4tn of such contracts.

An explosion in the largely unregulated credit derivatives market in recent years has seen potential payouts balloon to levels that far outstrip the potential losses from the underlying bonds they reference.

Lehman had $110bn of senior bonds outstanding before filing for bankruptcy last month. Since default, those bonds have been trading between 15 cents and 20 cents in the dollar. Analysts estimate there are $440bn of credit default swaps (CDS) outstanding in relation to Lehman senior bonds.

In theory, a CDS is a contract in which a bondholder buys insurance — known as protection — against that bond defaulting. In practice, however, CDSs have become hugely popular among investors trading on the likelihood of a bond default without holding the underlying bond. The market has proved particularly popular with hedge funds, in part because it offers an opportunity to “short sell” bonds.

Derivatives specialists insist it is impossible to predict which investors will be hit hardest by the losses on Lehman CDSs, which are spread far and wide, as Lehman was one of the most actively traded credit default swaps.

The United Nations Office on Drugs and Crime (UNODC) describes the situation as “a time bomb for public health and global security”.

This week’s Map of the Week comes courtesy of the UNODC. It shows their latest estimate of opium production in Afghanistan – another bumper year.

A crop of 7,700 tonnes will produce around 1,100 tonnes of heroin – it basically works on a 7:1 ratio.The mystery is that the global demand for heroin is less than half that. In other words, Afghanistan only needs to produce 3,500 tonnes to satisfy every known heroin user on the planet.

Look at the graph, though.

How do you explain the open interest drop at the Comex?

The open interest is at a 2 year low? Why don’t people understand the disconnect? Are all the central banks working to silence the canary? How else do you explain the explosion of tons on the Gold ETF (GLD), the huge public demand for the metal, the disconnect with the Comex action and the inability for Gold NOT to scream higher in this environment.

Minyan Dave

MD,

Open interest is falling on the COMEX because I believe you are seeing a gradual exit from the futures market due to a general distrust for the futures market (and all counterparties in general) due to the environment. That’s why we see reports of physical gold demand exploding and lease rates moving to record levels as central banks pull back in their leased gold. But the futures seem to trade as if nobody cares. Those central banks are pulling in their gold because they are worried about counterparty risk. They’re afraid they won’t get it back.

We’re seeing similar exits from the futures market in oil and other commodities too, not because of demand destruction, but because of flight from counterparty risk. After all, with respect to oil, if there’s all this demand destruction, then where are the physical inventory builds? That’s what happens when supply remains constant and demand falls. Yet, inventories of crude and product are near multiyear lows in the US. Many southeastern states still don’t have any gasoline.

Don’t worry though, eventually the futures market has to reconnect with the physical, and that’s where I believe gold is going to explode. We got a small taste of this, if you will recall, last month, when the crude oil contract expired and jumped around $15 in a day (I can’t recall the exact amount) because financial players were forced to buy back the crude or come up with crude to deliver, which they didn’t have.