Mohamed A. Ell-Erian writes:  Gold has let down its loyal investors during the past year, declining by about 8 percent. It has failed to benefit, as one might expect, from a series of geopolitical crises and concerns that stocks are overvalued. It has even failed to keep up with government bonds, usually the other recipient of flight-to-quality trades. Moreover, it has responded weakly to the excitement in India — its biggest physical retail market –– over the prospects for economic reforms under newly elected Prime Minister Narendra Modi.

Here are three major reasons for gold’s disappointing performance.

First, it usually does badly when the dollar appreciates. The greenback has gained during the past year as foreign-exchange traders have started to take account of less accommodating U.S. monetary policy, including the widening contrast with Europe and Japan.

Second, gold has been hurt by a general slump in commodity markets as global economic growth has fallen short of expectations in both developed and developing nations.

Third, it has found few investors willing to buy on the dip, either directly or through commodity funds.

None of this is likely to change anytime soon absent a bigger conflict in Ukraine or the Middle East.  As such, gold is likely to continue to disappoint its devotees. Yet investors shouldn’t forget that gold has its place and that a well-diversified portfolio should have gold holdings equal to 3 percent to 8 percent of total assets.

The biggest risk facing investors today is a large and sustained fall in assets whose prices have been artificially supported by central banks — particularly bonds and equities. This is especially the case should a decline in global growth be accompanied by greater geopolitical turmoil.

There are good reasons for gold to be unloved at this stage and thus having a position in gold toward the lower end of the allocation range is justifiable. But only brave investors would omit it from their investment portfolios given the fluid world we live in.