Tyler Durden

Nothing continues to scream bullishness – or, less sarcastically, volatility – like the world’s number two and number three superpowers aligning their armies and putting on a show of force to make a strong statement to the United States and fend off “Western Pressure”.

The prescription for volatility becomes even clear when we consider that the United States, Russia, and China are all in a precarious position with one another that has stemmed from, and has implications on, everything from trade to how to handle North Korea.

This military show of force and sign of unity between the two countries is exactly what has been reported by RT just today. Apparently, China and Russia are strengthening their ties in order to make a clear statement to the United States. To do that, Beijing sent a delegation to Russia to show Washington the unity of Russian and Chinese military forces and “support” Russia at the 7th Moscow Conference on International Security.

Chinese Defense Minister Wei Fenghe voiced strong support for Russia during the talks with his Russian counterpart, Sergey Shoigu. While stressing “the united position” on the international arena, the minister said that one of the main goals of the visit was to send a message to Western powers. 

The Chinese side came to let the Americans know about the close ties between the Russian and Chinese armed forces,” Wei said. The RT article continues:

It is General Wei’s first foreign trip since he was appointed head of the Chinese Defense Ministry. The choice of the destination is not a coincidence, but underlines the “special character” of the bilateral partnership, according to Shoigu.

Prior to the visit, the Chinese state-run Global Times newspaper published an article titled “Western pressure brings China and Russia closer.” The report quotes analysts, who believe that the current international environment – including Western anti-Russia hysteria and the looming US-China trade war – will only strengthen the Sino-Russian alliance.

Both nations have been engaged in their own disputes with the West. The NATO military buildup on Russia’s doorstep has already “crossed the red line,” according to Russian envoy to NATO Aleksandr Grushko. At the same time, Russia is at loggerheads with the US and EU over the poisoning of ex-double agent Sergei Skripal and his daughter in the UK. The British blame-game over Russia’s alleged involvement in the incident sparked tit-for-tat expulsions of diplomats.

It is unclear which tension out of all of them involving these countries has pushed these two superpowers to not only move closer together, but to make it public to the United States. But, as the RT article notes, tensions not only surrounding North Korea, but also surrounding trade and the “Russian diplomat shuffle” that has taken place over the last couple weeks are starting to pin the two like-minded governments together.

In addition to this, and at the same time these two countries are getting cozy, China and Russia have also been notably increasing their gold reserves. This follows our coverage from February, where we pointed out that Russia’s gold purchases were surpassing that of China:

  • Russian gold reserves are now the fifth largest in the world.
  • Russia added 600,000 ounce of gold (18.66 tons) to reserves in January.
  • Russia added a record 224 tons of gold to reserves in 2017.
  • Since June 2015, the Central Bank of Russia has added over 576 tons of gold to reserves.
  • Overall Russian reserves rose from $432.742 billion in December to $447.735 in January.
  • Russian holdings of U.S. Treasuries top $100 billion for ninth in a row.
  • Gold reserves worth $80.4 billion constitute 17.95% of overall Russian reserves.

As we wrote just two weeks ago, the “decision point” for gold could be forthcoming and the demise of the dollar could finally be on the horizon: Russia and China are increasing their gold reserves while last week China launched the Petroyuan, announcing it would start paying for oil in local currency, and not dollars.

As such, the joint Chinese and Russian show of force could not only be military, but also monetary, in the near future.

Regardless, this armed forces show of force is one notch higher in the tension pegboard for the global political and global economic climate. However, as has happened with volatility as it has increased over the last decade, we won’t be surprised when equity markets shrug off or ignore this news and continue to push stocks to record highs while hoarding today’s overpriced, oversubscribed and money losing Spotify IPO hand over fist.