The WGC, a body representing the gold industry, said the difference in interest rates between developed (DM) and emerging markets, which are particularly apparent at the moment given the low interest rate environment in DM, make gold a cheap way to protect and minimize EM currency risk.
"Gold exhibits a number of characteristics that allow investors to hedge part of the currency-related risk while reducing costs, adding diversification and protecting against tail risks," the WGC said.
The WGC said gold's link to emerging markets through consumer demand, its negative relationship with the U.S. dollar and other developed market currencies, and its low correlation to most developed-market assets make it a natural alternative alternative to currency hedging.
(Read More: Gold eyes 4th week of gains on Ukraine default fears)
However, as both Europe and emerging markets (EM) are facing deflation rather than inflation, currency analysts argue there are cheaper, more effective ways to hedge EM currency risk than using the metal.
Emerging markets have seen a brutal sell-off this year after sharp falls in the value of the Argentine peso, Turkish lira, South African rand and Brazilian real, with analysts largely blaming the turbulence on the Federal Reserve's move to begin tapering its asset purchases.
Intensified geo-political tension between Russia and the West over Ukraine has also caused extreme moves in the Ukrainian hryvnia and sparked concern that the turmoil could spill over into other EM markets.
Emerging market fears, including the deterioration of the situation in the Ukraine have driven inflows into gold ETPs (exchange traded products) last week according to ETF Securities. Head of research and investment strategy, Nicholas Brooks said the current global environment will remain supportive of defensive assets, such as gold.
(Read more: 2014 a good year for commodity bulls, so far)
But senior foreign-exchange strategist at Rabobank, Jane Foley said the cost of storing gold and the insurance that has to be paid on it, makes it a less attractive safe haven when compared to government paper or other hedges.
The disinflationary pressures in Europe and North America - where price growth is slowing - also mean there is less value in gold, as its intrinsic value means that it is a good inflationary hedge, Foley told CNBC.
"Clearly some EM currencies are currently more vulnerable than others and those with large current account deficits such as the Turkish lira and the South African rand have been under particular stress," she said.
(Read more: Key driver of gold in 2014: physical demand)
"While I may prefer to hold gold relative to the most vulnerable currencies this is largely because it is denominated in dollars and overall I would rather own either dollars or Euro government paper as a hedge," she added.
Bullion has fallen from a six-month high of $1,391.76 hit early last week to $1,304 on Thursday, after U.S. Federal Reserve Chief Janet Yellen suggested interest rates could rise sooner than many had expected, denting bullion's appeal as a hedge against inflation
Senior currency strategist at UBS, Geoffrey Yu said the metal is not a cost effective hedge as it is "negative carry" – meaning the cost of holding the metal exceeds the yield earned.
Yu said there may be a demand argument in place, as it is treated as a safe haven by Chinese and Indians, but this is based on a "historical mistrust of fiat money" – or a currency that a government has declared to be legal tender, but is not backed by a physical commodity.
"Over the past few years, these countries have actually been able to significantly diversify away from fiat money into other assets which offer high real returns – even in the event of an EM shock," Yu told CNBC.
(Read more: Gold up on softer equities, fund outflows keep gains in check)
"A true shock would mean all such assets are unwound, but in that event net wealth is destroyed to the extent that there may be very limited ability to add to marginal positions in gold," he said.
"Inflation is actually not a big issue anywhere, and after the initial shock, many EM countries may be entering deflation scenarios – hardly a good environment for gold," he added.