• North Korea threatens to reduce the U.S. to ‘ashes and darkness’
  • Markets becoming used to ongoing provocations from North Korea
  • Russia and China continue to support watered down versions of sanctions on Kim’s regime
  • Both NATO and Russia running war games on one another’s borders
  • Putin says Russia willgive a suitable response to NATOs threatening behaviour
  • Gold set to climb as fears over economy and war will drive safe haven demand

Missile fatigue

Source: Bloomberg

This year North Korea has launched a dozen missiles. With the latest one it has threatened the U.S. with ‘ashes and darkness’ as Kim believes it ‘should be beaten to death like a rabid dog.’

Russia and China continue to support watered down sanctions on the isolated country. Both have made it clear that they will not tolerate a war on their borders.

War talk is not just about North Korea anymore. NATO and Russia have been or are currently carrying out war games on one another’s borders. Both parties feel the other one has acted unreasonably in doing so. U.K. Defense Secretary Michael Fallon has accused Russia of deliberately provoking NATO, whilst Putin has said Russia hasno other choice than to give a suitable response to all of these actions,

Russia has previously used military exercises as a cover for what has ultimately been invasions and war. See Georgia in 2008 and Ukraine in 2014 for the most recent examples.

Saber rattling is quickly looking like its going to become full-blown sword fighting at least somewhere in the world.

But few seem to be worried. Markets are not only apparently fatigued by the war cries of the world’s nuclear powers but are evidently ignoringthe risks in the financial system.

Gold is currently up over 15% for the year, silver by nearly 12%. Both offer financial safe havens during times of war. All parties involved in the current geopolitical fracas are big holders of gold. Two of them, Russia and China are enabling the trade of the precious metal for key commodities.

Markets would be wise to look at how our great leaders are behaving before deciding that there is little to currently see on the global stage.

The four nos

On Monday UN representatives of both Russia and Chinareiterated what they refer to as the four nos: No regime change, No regime collapse, No accelerated reunification or military deployment north of the 38th parallel dividing the Korean Peninsula.

Neither China nor Russia see any advantage in heavily punishing North Korea whether through sanctions or military action.

They recognise the regime’s need for security guarantees from the U.S. before Kim is likely to stop with his nuclear missile program.

Both Putin and Xi Jinping have an incentive to prevent the U.S. from going to war with North Korea. Both are the biggest economic partners of the dictatorship. Neither wish to see a war on their borders that will only serve to protect and expand American strategic interests.

Both China and Russia are aware of both the economic and militarypower they currently wield . The situation is very different to say 20 years ago when the West was significantly ahead on all levels, when neither Russia nor China were able to compete on either front.

Tensions are coolest they’ve been since Cold War

Russia and China are clearly not happy with Kim’s nuclear ambitions. However it seems that currently it is more important for those classed as anti-Western to work together and thereby gain more influence in the international order.

Russia has its own problems with sanctions. It has been under them since theU.S. and European Union sanctions for its annexation of Crimea in 2014, its continued invasion of eastern Ukraine, and the shoot-down of Malaysian Airlines Flight 17 in July 2014.

It is perhaps the case that helping North Korea stand firm againstthe U.S and the U.N. is perhaps as much a matter of principle as it is strategic.

Refusing to give into Western calls for tougher sanctions onPyongyang is perhaps more a statement of Putin’s insistence that he will not give in to demands regarding his own military activities in both Crimea and Ukraine.

This week Russia is hosting large scale military drills on the border of three NATO countries. The drills (known as Zapad 2017) have been happening every year since 1999.

They have been growing in size since, especially as relations between Moscow and Washington grow every frostier.

The Moscow Times explains:

Military exercises lik