Jonathan Yates: Central bank buying, along with George Soros and Steven Cohen, is contributing mightily to the increase in the price of gold, with the exchange traded fund, SPDR Gold Shares (NYSEARCA:GLD) up almost 4% for the week.

According to an article in the Financial Times by Emiko Terazono, the central bank of South Korea (NYSEARCA:EWY) bought 15 tonnes of gold for $850 million in November 2011.

In the article, “Gold moves above $1,750 as South Korea bolsters holdings,” it was reported that South Korea bought 25 tonnes of gold earlier this year. These were the first purchases of gold by South Korea’s central bank in more than decade.

South Korea joins other central banks from Thailand (NYSEARCA:THD), Russia (NYSEARCA:RSX) and Bolivia in increasing gold in investment portfolios. This is a dramatic shift because gold is purchased as an investment hedge when faith is lost in the fiat currency of a country, which the central bank is supposed to protect.

The Korean won is a major constituent of the emerging markets currency ETF (NYSEARCA:CEW).

That is why investors such as George Soros and Steve Cohen buy the yellow metal. According to the Financial Times article by Terazono, central banks are now buying “more gold than at any time since the collapse of the Bretton Woods system 40 years ago.”

SPDR Gold Shares (NYSEARCA:GLD), finished the week at $169.82. For 2011, GLD is up more than 22%. With interest rates for savings near zero and inflation currencies, gold is being acquired too by consumers in India and China as a hedge against increasing prices.

Written By Jonathan Yates From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments.  CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging  Money to bring you cutting edge global news and analysis.

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