The WGC has carried out research indicating that had investors used gold to spread some of their risks in emerging markets between 1987 and 2012, they would have enjoyed generally higher returns at around the same level of volatility.

An un-hedged emerging market index , held between 1987 and 2012, would have delivered annual returns of 8.4 per cent; if the index exposure is hedged with a 50/50 split of currencies and gold, the return would have been 8.96 per cent and the volatility 7.95 per cent, the report said.

The WGC’s paper, entitled, Gold and Currencies: Hedging Foreign Exchange Risk, said that the yellow metal can improve the impact of currency hedging strategies, especially where emerging market equities are concerned.

The report said gold has a positive correlation to emerging market growth, a negative correlation to the dollar and other developed market currencies, and has a low investment cost.

“Results show that compared to traditional foreign-exchange hedging, a strategy incorporating gold has distinct advantages. First, it lowers portfolio drawdown risk: adding gold to an un-hedged emerging market investment achieves a lower drawdown than a 100 per cent currency-hedged strategy,” the report said.

“Second, a gold overlay has lower costs than traditional emerging-market currency hedges. Consequently, while gold is not a perfect substitute to emerging market currencies, adding gold produces higher risk-adjusted returns than either a fully hedged or an un-hedged foreign-exchange position,” it said.