Gold, defence, oil: How should you position your investments amid the US Israel Iran conflict?

Escalating tensions between the US, Israel and Iran are sending ripples across global financial markets, pushing investors toward traditional safe-haven and defence-linked assets. Gold prices have surged amid risk aversion, while oil markets remain volatile on fears of supply disruptions in the Middle East. As geopolitical risks intensify, investors are increasingly evaluating exposure to gold, defence and energy stocks as potential hedges in an uncertain global environment.

Gold as key portfolio hedge

Amid rising geopolitical uncertainty, gold continues to attract strong investor interest as a portfolio risk diversifier. Analysts say the precious metal plays a crucial role in protecting portfolios during periods of heightened volatility and geopolitical stress.

DBS Chief Investment Officer Hou Wey Fook said the bank continues to maintain exposure to gold as part of its broader portfolio strategy focused on resilience.

“Our approach to portfolio construction is focused on high-quality securities within our ‘Barbell’ strategy,” Hou said.

“On the defensive side, we hold high-grade credit over non-investment-grade bonds. On the growth side, we focus on equities of profit-generating companies, particularly in sectors aligned with secular trends such as AI, longevity and scarcity, as well as companies that demonstrate sustainable dividend yields.”

He added that portfolios also maintain a meaningful allocation to risk-diversifying assets such as gold.

“We also maintain a reasonably high allocation to risk-diversifying assets, primarily gold. Taken together, this gives us comfort in the resilience of the current portfolio construct.”

According to Hou, investors may consider increasing defensive allocations if geopolitical conditions deteriorate further.

“Depending on how the crisis unfolds, and if conditions deteriorate or become prolonged, we may consider increasing our defensive exposures — particularly in high-grade bonds and gold,” he said.

Silver not a substitute for gold

While gold is widely viewed as a traditional safe-haven asset, silver does not offer the same level of portfolio protection, Hou said.

“We do not subscribe to the notion that silver can act as a substitute for gold as a portfolio risk diversifier,” he said.

One key reason is silver’s strong link to industrial demand.

“Silver has a large proportion — around 60 per cent — of its demand coming from industrial applications. This exposure to industrial demand makes silver susceptible to price corrections during periods of economic weakness. In comparison, gold only has around 10 per cent of demand tied to industrial activity and therefore remains more resilient during downturns.”

Hou also pointed to the large difference in market size between the two metals.

“Silver has a much smaller market size of roughly $5 trillion compared with gold’s market of about $36 trillion. This makes silver more vulnerable to speculative and retail flows, resulting in sharper price swings.”

He noted that silver has historically experienced greater volatility than gold.

“Silver saw an intra-day drop of more than 30 per cent during the market rout earlier this year, while gold capped its decline at around 9 per cent,” Hou said.

Finally, he emphasised that gold’s long-standing role in the global monetary system reinforces its safe-haven status.

“Central banks have held gold as part of their reserves for centuries. Silver does not enjoy the same status as a store of value compared to gold.”

Oil prices may rise

The conflict between the US, Israel and Iran is also being closely watched by energy markets due to the risk of supply disruptions in the Middle East.

Hou said the recent escalation in military activity could lead to a prolonged confrontation.

“The US and Israel launched military strikes on Iran over the weekend, escalating what were already simmering tensions over the latter’s nuclear ambitions into a full-blown conflict,” he said.

American and Israeli forces carried out attacks on several Iranian cities including Tehran, Isfahan, Qom, Karaj and Kermanshah. In response, Iran launched retaliatory strikes targeting US bases in Bahrain, Qatar and the United Arab Emirates as well as security centres in Israel.

“The conflict remains in progress, with the substantial US military presence in the region and Iran’s extensive missile stockpiles suggesting it could be a protracted skirmish,” Hou said.

Oil markets have already reacted to the rising tensions.

“Brent crude rose to a seven-month high of $73 per barrel on Friday, with further gains expected given the possibility of supply disruption from the conflict,” he said.

Hou added that a disruption to oil infrastructure or a blockade of the Strait of Hormuz — through which roughly 30 per cent of global crude supply passes — could push prices significantly higher.

“Oil prices could spike towards the $80–$100 per barrel range if such disruptions materialise,” he said.

Energy and defence stocks in focus

Even if oil prices remain volatile, large energy companies may continue to benefit from strong earnings.

“Oil majors have seen their share prices outperform, reflecting solid earnings from higher upstream volumes, cost efficiencies and stronger downstream earnings,” Hou said.

He added that investors could consider exposure to large-cap energy companies as part of a defensive allocation.

“Investors would be well advised to consider large-cap energy names as a defensive allocation against potential tech bubble-related anxieties that may periodically emerge,” he said.

Meanwhile, rising geopolitical tensions are also supporting the outlook for defence companies as governments worldwide increase military spending and replenish defence stockpiles.

For investors navigating an increasingly uncertain global environment, assets such as gold, defence stocks and energy companies may play a crucial role in building resilient portfolios.