Go for gold, US dollar or Singapore stocks as Middle East conflict escalates?

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SINGAPORE – Financial markets have been on a roller coaster since the United States and Israel first launched military strikes against Iran on Feb 28, killing its Supreme Leader Ayatollah Ali Khamenei and other senior commanders.

Tensions continued to rise through the week, with the US torpedoing an Iranian naval ship in international waters in the Indian Ocean – making it one of about 20 vessels the US military said it has struck – as Iran retaliated across the Persian Gulf by striking US bases, surrounding Gulf cities and oil facilities.

The escalating conflict has jolted global energy markets with shipping through the Strait of Hormuz all but halted, affecting a fifth of the world’s supply of oil and liquefied natural gas.

On March 6, the US warned that firepower over Iran could surge “dramatically” while Israel declared it is moving into the “next phase” of war.

With volatility likely to persist, investors seeking to optimise returns or hedge their portfolios against further uncertainty may want to consider holding the following three assets.

1. Opportunity in Singapore stocks

Investors seeking regional diversification may want to consider Singapore stocks, Mr Afdhal Rahman, executive director of wealth advisory at OCBC Bank, said in a March 3 note to clients.

The Straits Times Index (STI) has held up relatively well compared with other global markets amid the recent volatility. The benchmark fell to a one-month low of around 4,775 points on March 4 before rebounding to close at 4,848.25 on March 6, 4.4 per cent higher so far this year.

Mr Rahman said Singapore’s market has outperformed global equities on a total-return basis over the past five years and is increasingly viewed as a regional safe haven, supported by a stable currency and resilient economy, as well as predictable policies that are positive for the market.

In the Singapore Budget 2026 unveiled on Feb 12, for example, the Monetary Authority of Singapore (MAS) announced an expansion of its Equity Market Development Programme (EQDP) by $1.5 billion to $6.5 billion.

The EQDP was launched in July 2025 as a $5 billion MAS initiative to invest in and boost the vibrancy of the Singapore stock market. Some $3.95 billion has so far been allocated to nine fund managers to invest in local stocks.

Mr Rahman noted that large-cap stocks could benefit from solid earnings and reliable dividends, while small- and mid-cap counters may continue to draw support from initiatives including the EQDP.

He said the STI’s dividend yield of about 4 per cent to 5 per cent could also appeal to investors looking for regular income, adding that actively managed funds can help investors find opportunities across different Singapore stocks.

Analysts at Citi Research noted on March 3 that certain sectors have historically shown resilience or even a mildly positive relationship with rising oil prices. Specifically, OCBC Bank, Yangzijiang Shipbuilding, Keppel, SATS and City Developments were identified as top picks for the next six to 12 months.

2. More upside for gold

Investors worried about market uncertainty can consider safe haven assets such as gold for some stability, Mr Rahman said.

However, those who already hold a lot of gold – especially after prices climbed sharply over the past year – may want to spread their investments across other assets that have recently fallen in price. Gold typically makes up about 4 per cent of a balanced investment portfolio, he added.

Pictet Wealth Management said in a March 4 note that gold could continue to rise as the metal often benefits from geopolitical tensions and inflation concerns. However, prices tend to fall back once the situation stabilises.

Gold prices, which jumped when the US and Israel first struck Iran, have dropped about 3 per cent this week to US$5,106 an ounce on March 6.

Mr Carsten Menke, head of next generation research at Julius Baer, said the decline was surprising given the rise in risk aversion, though investors buying up the US dollar and selling their holdings in gold may be driving the drop.

Commodities such as gold are priced in US dollars, meaning a stronger dollar can make the metal less attractive and more expensive for buyers using other currencies.

Still, Mr Menke said that while gold has not always held gains after geopolitical shocks, it is still widely seen as a safe haven asset that can help stabilise portfolios during periods of financial market volatility.

3. Riding a stronger US dollar

The other asset that has seen inflows since the start of hostilities on Feb 28 is the US dollar, which seems to have reclaimed its safe haven mantle.

The US dollar index – which measures the greenback against a basket of six major currencies – is on course for a 1.4 per cent gain this week, offsetting declines earlier in the year and bringing the currency to a net gain for 2026.

The greenback has strengthened against regional currencies. The Singapore dollar has fallen by 1.14 per cent against the US currency over the week, trading at 1.2783 at 10.35am on March 6.

Aside from its appeal as a safe haven asset, the US dollar has risen against major and regional currencies due to concerns that higher oil prices could keep US inflation high, reducing the likelihood that the Federal Reserve will cut interest rates soon, Maybank head of foreign exchange research Saktiandi Supaat said.

He noted that markets now see only a 37 per cent chance of a rate cut in June, compared with 50 per cent a month ago. When prices rise too quickly, the Fed keeps interest rates high to slow spending and borrowing.

RBC Wealth Management forecasts that should the war drag on, oil prices could reach US$100 per barrel compared with US$83 per barrel on March 6, while global natural gas prices, which have spiked more than 50 per cent, could at least hit their highest level since the first quarter of 2023. 

Still, analysts at MUFG said the US dollar could weaken later in 2026 if Mr Kevin Warsh, who is expected to succeed Mr Jerome Powell as Fed chairman, supports further rate cuts after taking office.