Gold ETFs are down nearly 20% this year. However, the poor performance shouldn’t discourage investors from maintaining a small percentage to the metal in their long-term portfolios for diversification, an inflation hedge and disaster insurance, some experts say.

Todd Rosenbluth, senior director of ETF research for S&P Capital IQ, thinks removing an allocation to gold from a diversified investment portfolio after this year’s price pullback might be shortsighted.

“Gold is a way to hedge your portfolio against inflation, and a way to add some diversification to your portfolio so you’re not only in equities or fixed income,” Rosenbluth said in a report this week.

He pointed out that SPDR Gold Shares (NYSEArca: GLD), the largest precious metal ETF, has exhibited a very low correlation with the S&P 500 over the past three years. Other bullion-backed ETFs include iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL).

Gold prices have fallen below $1,400 as the U.S. economy slowly improves and on speculation the Federal Reserve may soon begin scaling back its bond purchases. [Cashed-Out Gold ETF Investors Face Higher Tax Bill]

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