US-Israel-Iran War: Gold Isn’t Rallying, Equities Are Volatile – Where Should Investors Put Money?

US-Israel-Iran War: In a war-torn market, investors are finding it hard to rebalance their portfolios. Equities, as expected, have turned volatile. Market participants are reacting to every new development in the ongoing US-Israel-Iran war and rapid fluctuations in oil prices.

Gold, traditionally seen as a safe-haven asset during times of crisis, has, so far, failed to deliver the kind of rally investors would expect in a conflict of this scale. This has left those wanting to seek some stability somewhat disappointed.

Debt, on the other hand, has been relatively steady, offering predictable returns and helping cushion the volatility in equities. However, for many retail investors returns are not enough to create any meaningful wealth, especially in an environment where inflation is expected to rise.

The typical advice from experts is to keep portfolio diversified. But the real question, however, is how much to allocate to each asset.

Should investors reduce exposure to equities and sit through the volatility? Is it worth adding more gold despite its recent underperformance? Or is it better to invest in debt for stability, even if it means settling for lower returns?

What the ideal asset allocation strategy should be in a war-torn market, high oil prices, and an uncertain global monetary policy outlook? Outlook Money spoke to market experts to find some answers.

Why Gold Isn’t Rallying This Time

Since the US and Israel launched a joint military operation against Iran on February 28, starting a full-fledged war, gold futures on the Multi Commodity Exchange (MCX) has declined nearly 10 per cent.

Kaynat Chainwala, assistant vice president of commodity research at Kotak Securities, says the metal is currently caught between two opposing forces.

On one hand, geopolitical tensions in West Asia should support gold. On the other, those very tensions are pushing up oil prices, fuelling inflation and forcing the US Federal Reserve (US Fed) to stay cautious on rate cuts. This has strengthened the dollar and kept real yields elevated, both of which typically weigh on gold.

The US Fed, at its March 17-18 meeting, left the key benchmark lending rate unchanged at 3.50-3.75 per cent range, and maintained a cautious, hawkishly tilted "wait-and-see" stance.

Gold typically comes under pressure when the US Fed maintains a hawkish stance, as elevated interest rates keep bond yields high and support the dollar, reducing the appeal of the non-yielding metal.

She explains that the recent correction “reflects macro tightening rather than any structural weakness.” In other words, the fundamentals for gold haven’t broken down. Central bank buying, exchange-traded fund (ETF) inflows, and a broader shift away from dollar reserves continue to support the long-term case.

When Will Equities Bounce Back?

Equity markets, meanwhile, are absorbing multiple shocks — rising oil prices, uncertain global monetary policy, and the risk of escalation in the conflict.

Vaqarjaved Khan, senior fundamental analyst at Angel One believes this phase, while uncomfortable, is not unusual. He says that markets are currently “stoked on account of oil prices spiking,” but could stabilise once there is clarity on the geopolitical front.

He adds that a potential ceasefire could trigger a rebound, suggesting that equities may recover quickly once uncertainty fades. For long-term investors, this implies that volatility could present staggered buying opportunities rather than a reason to exit completely.

Debt Provides Stability, But At A Cost

On the other hand, debt, as expected, has remained steady, predictable, and relatively insulated from market swings. The country’s benchmark 10-year government bond yields currently is around 6.75 per cent and the Q4FY26 inflation is projected by the Reserve Bank of India (RBI) to be at 3.20 per cent.

Surging crude oil prices and an acute LPG shortage, due to the ongoing West Asia crisis, have begun to disrupt industrial activity. India imports nearly 90 per cent of its crude oil requirements and about half of its LPG needs, therefore, it remains particularly vulnerable to disruptions in energy supply.

Any rise in energy costs is likely to feed directly into inflation. According to Deutsche Bank, a 10–20 per cent increase in global oil prices could push up India’s inflation by 25–50 basis points if fully passed on to consumers. Even with only a partial pass-through, consumer price inflation could move up to the 4.5–5 per cent range.

So, if inflation hovers around 5 per cent and bond yields are at about 6.75 per cent, real returns appear relatively thin. Though debt instruments provide stability to portfolio, they may not generate the kind of returns needed to build wealth over the long run, especially if inflation stays higher due to sustained pressure from oil prices.

So, What Should Investors Do?

Experts say that rather than making extreme, reactionary changes, investors rebalance their portfolios with a clear and disciplined allocation strategy.

Khan recommends a relatively balanced approach in the current environment:

• 50 per cent in equities to capture eventual recovery

• 20 per cent in gold, given its ongoing structural bull case

• 20 per cent in debt for stability

• 10 per cent in cash to deploy during corrections

Chainwala, however, advises a more measured exposure to gold. She suggests maintaining 8–15 per cent allocation, calling it “prudent” for balancing risk without overexposure.