Large Speculators have been making this bet on silver
By Elliott Wave International
Observations over the years reveal that hedge fund managers tend to extrapolate current trends of financial markets into the future — just like most Main Street investors.
In other words, hedge fund managers are just as much a part of the “crowd” as the little guy.
So, this 2021 headline from the American Enterprise Institute is not surprising:
The SP 500 Index Out-performed Hedge Funds over the Last 10 Years. And It Wasn’t Even Close
Hedge funds and trend followers are known as Large Speculators in the Commitment of Traders report published by the Commodity Futures Trading Commission. They usually take the opposite side of the trade from a group known as the Commercials; insiders who participate in a business related to a given commodity. The Commercials usually turn out to be on the right side of a trade.
With this in mind, let’s focus on silver. Here’s a chart and commentary from our May 15 U.S. Short Term Update:
Large Specs… are strongly betting that [Silver]’s rally will continue. The middle graph on the chart shows the Large Spec net long or net short position as a percentage of total non-spreading open interest. Two weeks ago, it was 23.49%. Last week, despite a 9% decline in silver prices over just five days, Large Specs are net long 23.14%, hardly budging from their prior stance… We will keep you apprised of new developments.
The U.S. Short Term Update makes clear that Commitment of Traders positions are not a great short-term timing tool. At the same time, be aware that extreme positions often occur at key trend turns.
Also keep in mind that silver’s Elliott wave structure can help you to anticipate price turns.
Indeed, here’s a quote from the Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior:
It is our practice to try to determine in advance where the next move will likely take the market. One advantage of setting a target is that it gives a sort of backdrop against which to monitor the market’s actual path. This way, you are alerted quickly when something is wrong and can shift your interpretation to a more appropriate one if the market does not do what you expect. The second advantage of choosing a target well in advance is that it prepares you psychologically for buying when others are selling out in despair, and selling when others are buying confidently in a euphoric environment.
No matter what your convictions, it pays never to take your eyes off what is happening in the wave structure in real time. Ultimately, the market is the message, and a change in behavior can dictate a change in outlook. All one really needs to know at the time is whether to be long, short or out, a decision that can sometimes be made with a swift glance at a chart and other times only after painstaking work.
If you’d like to read the entire online version of the book, you may do so for free once you join Club EWI, the world’s largest Elliott wave educational community.
A Club EWI membership is also free and members enjoy complimentary access to a wealth of Elliott wave resources on investing and trading.
This article was syndicated by Elliott Wave International and was originally published under the headline Here’s What Silver Investors Need to Know. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
The US stock indices ended Wednesday’s trading in decline, as negotiations between the White House and Republican representatives to raise the US debt ceiling were seriously delayed. By the close of trading, the Dow Jones Index (US30) decreased by 0.77%, while the S&P 500 Index (US500) lost 0.73%. Technology Index NASDAQ (US100) fell by 0.61% yesterday.
The lack of progress on raising the US government’s $31.4 trillion debt limit before the June 1st deadline, with several rounds of inconclusive negotiations, has irritated investors as the risk of a catastrophic default grows. There are only seven calendar days left until June 1st, with about three days to process all the paperwork if there is a deal. Therefore, the US politicians have only four days left to find common ground.
The Fed meeting minutes showed that future rate hikes are less certain and preferred to keep policy flexibility as inflation continues to outpace the trend and the impact of the banking crisis remains uncertain. Some participants noted that, based on their expectation that progress in bringing inflation down to 2% may remain unacceptably slow, additional policy tightening would likely be needed at future meetings. Federal Reserve Chairman Chris Waller suggested that the Central Bank may skip a hike in June but is still leaning toward a rate hike in July depending on inflation data.
Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE30) fell by 1.92%, France’s CAC 40 (FR40) lost 1.70% on Wednesday, Spain’s IBEX 35 (ES35) was down 1.14%, Britain’s FTSE 100 (UK100) closed negative 1.75% yesterday.
Germany’s leading indicator, the Ifo index, fell from 93.6 to 91.7 for the first time after a six-month rise. The first drop in the Ifo index in six months is evidence of fading optimism. Recent bank turmoil appears to have caught up with German company valuations. The report indicates that falling purchasing power, a shrinking industrial order book, and the impact of the most aggressive monetary policy tightening in decades will lead to weak economic activity in the region. In addition to these cyclical factors, the ongoing war in Ukraine, demographic changes, and the ongoing energy transition will put structural pressure on the German economy in the coming months.
The UK Consumer Price Index fell from 10.1% to 8.7% (forecast 8.2%) y/y. But core inflation (excluding food and energy prices) unexpectedly rose from 6.2% to 6.8% y/y. As a result, overall inflation declined, but inflationary pressures remain persistent in key sectors. In this situation, the British Central Bank has no choice but to keep raising rates.
WTI crude oil jumped over 2% yesterday after an excessive weekly drop in US crude inventories. Oil demand is rising in anticipation of road, air, and sea transportation in the summer, which is usually accompanied by an increase in the price of “black gold”.
Asian markets were also mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.89%, China’s FTSE China A50 (CHA50) lost 1.50%, Hong Kong’s Hang Seng (HK50) ended the day down 1.62%, India’s NIFTY 50 (IND50) added 0.34%, while Australia’s S&P/ASX 200 (AU200) ended Wednesday negative 0.63%.
NVIDIA Corporation (NVDA) rose sharply yesterday after the video card maker beat expectations for its first-quarter earnings and projected higher revenue due to strong demand from artificial intelligence development. Nvidia’s positive outlook improved the outlook for the chip-making sector, with Southeast Asia a major region.
Concerns about a new wave of COVID in China hit regional stocks. The Chinese government has warned that a new outbreak could peak by the end of June. Although symptoms of a new variant of COVID are mild, markets fear further disruptions to China’s economic recovery.
S&P 500 (F) (US500) 4,115.24 −30.34 (−0.73%)
Dow Jones (US30)32,799.92 −255.59 (−0.77%)
DAX (DE40) 15,842.13 −310.73 (−1.92%)
FTSE 100 (UK100) 7,627.10 −135.85 (−1.75%)
USD Index 103.89 +0.40 +0.39%
Important events for today:
– German GDP (q/q) at 09:00 (GMT+3);
– US GDP (q/q) at 15:30 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
The Jap225 index on the H4 time frame was in bullish territory from the beginning of May. However, bears did try to challenge their reign a few times but to no avail. This changed on 23 May when a last higher top formed at 31348. The bears got enough backing to start a shift in the market momentum.
A closer look at the Momentum Oscillator reveals a negative divergence between points “a” and “b” when comparing the tops at 30955 and 31348. This could have alerted technical traders that the bulls might be running out of steam.
Further confirmation of the increasing bearish presence in the market was displayed when the price broke through the 15 and 34 Simple Moving Averages with the Momentum Oscillator following suit by breaking through the 100 baselines into bearish terrain.
A possible critical support level formed when a lower bottom was recorded on 24 May at 30394.
If the bears manage to break through the critical support level at 30394, then three possible price targets can be set from there. Attaching the Fibonacci tool to the lower bottom at 30394 and dragging it to the resistance level at 31348, the following targets may be determined. The first target can be estimated at 30012 (161.8%). The second price target can be expected at 29822 (261.8%) and the third and final target can be estimated at 29440 (423.6%).
If the resistance level at 31348 is broken, the current scenario must be re-evaluated.
As long as the bears maintain the upper hand, the outlook for the Jap225 Index on the H4 time frame will remain bearish.
The US Federal Reserve is likely to pause interest rate hikes in June, which will be welcomed by markets, says the CEO and founder of one of the world’s largest financial advisory, asset management and fintech organizations.
The comments from Nigel Green of deVere Group come as Fed officials were divided earlier this month on whether to continue with their interest rate hikes at their upcoming meeting in June, according to the minutes of their May 2-3 meeting, released on Wednesday.
“Several [policymakers] noted if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” the minutes read.
The deVere CEO says: “Although officials agreed that inflation was still ‘unacceptably high,’ when the Fed says ‘may not be necessary’ this suggests a pause. In addition, the use of the word ‘several’ hints at a majority.
“Plus Chair Jerome Powell himself indicated in speeches last week that he and his officials were open to backing a pause in rate hikes at their next meeting in June.
“They also highlight that a debt default threatens tighter financial conditions, and that a mild recession could hit later in 2023, which would signal that they opt for a pause.”
Keeping rates unchanged for the first time since early 2022 – which at 5-52.5% are the highest since 2006 – is something that will be welcomed by markets, says Nigel Green.
“Markets will be buoyed as it will appear that the end of rate hikes is getting closer and closer.
“However, should this happen, investors must remember this would not yet be a pivot, it would remain a hawkish pause.”
The deVere boss says the US central bank would be right to pause for three main reasons. “First, the crisis within the US financial system is still not over. There remain serious and legitimate concerns that after a string of bank failures, there could be more to come.
“The turmoil from the banking crisis is leading to a drop in bank lending, tightening the credit conditions for households and businesses. In turn, this will inevitably lead to a slowdown in economic activity and hiring.
“The Fed’s interest rate hiking agenda has tightened financial conditions which, in part, led to the banking crisis, and now the banking crisis itself is going to put the squeeze on financial conditions even more.
“Second, the time lag for monetary policies is very long. It is said that it takes about 18 months to two years for the full effect of rate hikes to filter fully into the economy.
“Third, the bond market is suggesting a long and/or deep recession with its inverted yield curve. Yields are inversely related to bond prices.”
This is typically the sign of a coming recession – an inverted yield curve has emerged roughly a year before nearly all recessions since 1960.
Nigel Green concludes: “We hope and expect that the Fed will do the right thing in June and pause interest rate hikes, with a view to start cuts later this year.”
About:
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.
After a three-year hiatus, scientists in the U.S. have just turned on detectors capable of measuring gravitational waves – tiny ripples in space itself that travel through the universe.
Unlike light waves, gravitational waves are nearly unimpeded by the galaxies, stars, gas and dust that fill the universe. This means that by measuring gravitational waves, astrophysicists like me can peek directly into the heart of some of these most spectacular phenomena in the universe.
Since 2020, the Laser Interferometric Gravitational-Wave Observatory – commonly known as LIGO – has been sitting dormant while it underwent some exciting upgrades. These improvements will significantly boost the sensitivity of LIGO and should allow the facility to observe more-distant objects that produce smaller ripples in spacetime.
By detecting more events that create gravitational waves, there will be more opportunities for astronomers to also observe the light produced by those same events. Seeing an event through multiple channels of information, an approach called multi-messenger astronomy, provides astronomers rare and coveted opportunities to learn about physics far beyond the realm of any laboratory testing.
Ripples in spacetime
According to Einstein’s theory of general relativity, mass and energy warp the shape of space and time. The bending of spacetime determines how objects move in relation to one another – what people experience as gravity.
Gravitational waves are created when massive objects like black holes or neutron stars merge with one another, producing sudden, large changes in space. The process of space warping and flexing sends ripples across the universe like a wave across a still pond. These waves travel out in all directions from a disturbance, minutely bending space as they do so and ever so slightly changing the distance between objects in their way.
When two massive objects – like a black hole or a neutron star – get close together, they rapidly spin around each other and produce gravitational waves. The sound in this NASA visualization represents the frequency of the gravitational waves.
Even though the astronomical events that produce gravitational waves involve some of the most massive objects in the universe, the stretching and contracting of space is infinitesimally small. A strong gravitational wave passing through the Milky Way may only change the diameter of the entire galaxy by three feet (one meter).
The first gravitational wave observations
Though first predicted by Einstein in 1916, scientists of that era had little hope of measuring the tiny changes in distance postulated by the theory of gravitational waves.
Around the year 2000, scientists at Caltech, the Massachusetts Institute of Technology and other universities around the world finished constructing what is essentially the most precise ruler ever built – the LIGO observatory.
The LIGO detector in Hanford, Wash., uses lasers to measure the minuscule stretching of space caused by a gravitational wave. LIGO Laboratory
LIGO is comprised of two separate observatories, with one located in Hanford, Washington, and the other in Livingston, Louisiana. Each observatory is shaped like a giant L with two, 2.5-mile-long (four-kilometer-long) arms extending out from the center of the facility at 90 degrees to each other.
To measure gravitational waves, researchers shine a laser from the center of the facility to the base of the L. There, the laser is split so that a beam travels down each arm, reflects off a mirror and returns to the base. If a gravitational wave passes through the arms while the laser is shining, the two beams will return to the center at ever so slightly different times. By measuring this difference, physicists can discern that a gravitational wave passed through the facility.
Since 2015, LIGO has completed three observation runs. The first, run O1, lasted about four months; the second, O2, about nine months; and the third, O3, ran for 11 months before the COVID-19 pandemic forced the facilities to close. Starting with run O2, LIGO has been jointly observing with an Italian observatory called Virgo.
Between each run, scientists improved the physical components of the detectors and data analysis methods. By the end of run O3 in March 2020, researchers in the LIGO and Virgo collaboration had detected about 90 gravitational waves from the merging of black holes and neutron stars.
Upgrades to the mechanical equipment and data processing algorithms should allow LIGO to detect fainter gravitational waves than in the past. LIGO/Caltech/MIT/Jeff Kissel, CC BY-ND
One particularly promising upgrade involved adding a 1,000-foot (300-meter) optical cavity to improve a technique called squeezing. Squeezing allows scientists to reduce detector noise using the quantum properties of light. With this upgrade, the LIGO team should be able to detect much weaker gravitational waves than before.
My teammates and I are data scientists in the LIGO collaboration, and we have been working on a number of different upgrades to software used to process LIGO data and the algorithms that recognize signs of gravitational waves in that data. These algorithms function by searching for patterns that match theoretical models of millions of possible black hole and neutron star merger events. The improved algorithm should be able to more easily pick out the faint signs of gravitational waves from background noise in the data than the previous versions of the algorithms.
Astronomers have captured both the gravitational waves and light produced by a single event, the merger of two neutron stars. The change in light can be seen over the course of a few days in the top right inset. Hubble Space Telescope, NASA and ESA
A hi-def era of astronomy
In early May 2023, LIGO began a short test run – called an engineering run – to make sure everything was working. On May 18, LIGO detected gravitational waves likely produced from a neutron star merging into a black hole.
LIGO’s 20-month observation run 04 will officially start on May 24, and it will later be joined by Virgo and a new Japanese observatory – the Kamioka Gravitational Wave Detector, or KAGRA.
While there are many scientific goals for this run, there is a particular focus on detecting and localizing gravitational waves in real time. If the team can identify a gravitational wave event, figure out where the waves came from and alert other astronomers to these discoveries quickly, it would enable astronomers to point other telescopes that collect visible light, radio waves or other types of data at the source of the gravitational wave. Collecting multiple channels of information on a single event – multi-messenger astrophysics – is like adding color and sound to a black-and-white silent film and can provide a much deeper understanding of astrophysical phenomena.
With run O4, astronomers will have access to the most sensitive gravitational wave observatories in history and hopefully will collect more data than ever before. My colleagues and I are hopeful that the coming months will result in one – or perhaps many – multi-messenger observations that will push the boundaries of modern astrophysics.
Yesterday, the leading cryptocurrency was feeling good and rising in value. However, the mood has changed today. But if we step back, we can see that strategically nothing is changing. The market is waiting and saving power until important news about the US national debt comes out.
Another round of debt limit negotiations between Democrats and Republicans is over. There are no results and time is running out. By 1 June, the US federal government will be left without the ability to fund its spending.
Strong support for BTC remains at 26,500 USD. If it is broken, the bears will rush towards 25,200 USD.
The cryptocurrency market capitalisation has fallen to 1.118 trillion USD. BTC’s share fell to 46.3%, while ETH’s share rose to 19.5%.
China launches its own metaverse
A state-owned metaverse has been launched in China. It is a platform for blockchain technology and applications. The metaverse aims to develop new digital technologies.
CoinDesk registers interest in CFX token
CoinDesk has recorded growing user interest in the Conflux Network token, CFX, also referred to as China’s Ethereum. CFX became popular when Hong Kong authorities allowed retail investors to conduct transactions in cryptocurrency.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
The US stock indices ended Tuesday with a negative result. By the close of trading on the stock market Dow Jones (US30) decreased by 0.69%, and S&P 500 (US500) was 1.12% lower. The Technology Index NASDAQ (US100) fell by 0.26% on Tuesday. Stock indices are down again due to growing concerns about the US default. Yesterday lawmakers concluded another round of debt ceiling talks without a deal. The lack of progress comes just days before June 1st, when the US may default on its debt. But it is worth realizing that the likelihood of default is low because such debates happen almost every year and every time politicians agree. But this time, the politicians really delayed the deadlines.
The minutes from the last FOMC meeting will be released today. Despite the hawkish statements from Fed officials, about 88% of traders continue to believe that the US central bank will suspend the tightening cycle at the June meeting.
The latest economic data showed that the US manufacturing PMI fell into contraction territory from 50.2 to 48.5. The service sector was much better, with the PMI rising from 53.6 to 55.1. The drop in the manufacturing sector is the first wake-up call for the US Federal Reserve in terms of high-interest rates starting to have a negative impact on the economy.
Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE30) decreased by 0.44%, France’s CAC 40 (FR40) fell by 1.33% on Tuesday, Spain’s IBEX 35 (ES35) lost 0.41%, and the British FTSE 100 (UK100) was down by 0.10% yesterday.
The May Eurozone PMI report showed that fears of higher core inflation should be centered around services, while goods inflation is slowing. Services business activity continues to point to strong growth despite the index dropping from 56.2 to 55.9. Meanwhile, manufacturing business activity showed a slowdown for the first time in 6 months. The more than six-month decline in the index indicates a weakening of the manufacturing sector. The divergence between services and manufacturing is growing, with services inflation accelerating again.
According to the International Monetary Fund’s updated forecasts on Tuesday, the British economy will avoid a recession this year. The IMF now thinks the British economy will grow by a modest 0.4% this year, partly as a result of rising wages. Despite the more optimistic estimate, the IMF said that inflation is likely to remain high in the coming years and will not return to the Bank of England’s target of 2% until mid-2025.
At the moment all the factors are adding up to the rise in oil prices. First, the Canadian wildfires are reducing oil supplies in North America. Second, demand in the US is expected to increase after Memorial Day, which unofficially marks the start of summer road trips in America. Third, Saudi Arabia’s energy minister threatened yesterday to cut production sharply if oil prices fall below $70 a barrel. Fourthly, analysts still expect the growth of demand in China (the biggest oil importer).
Asian markets were mostly down yesterday, except the Indian index. Japan’s Nikkei 225 (JP225) decreased by 0.42%, China’s FTSE China A50 (CHA50) fell by 1.57%, Hong Kong’s Hang Seng (HK50) ended the day down 1.25%, India’s NIFTY 50 (IND50) added 0.18%, and Australia’s S&P/ASX 200 (AU200) ended Tuesday negative 0.05%.
The Central Bank of New Zealand (RBNZ) expectedly to raise interest rates by 25 basis points to 5.5%, the highest level in more than 14 years. The RBNZ also said that inflation remains too high and still predicts a recession this year. According to the monetary policy statement (MPS) accompanying the rate decision, the RBNZ expects the official monetary rate at the current level of 5.5% to be the peak and remain at that level until the middle of next year.
S&P 500 (F) (US500) 4,145.58 −47.05 (−1.12%)
Dow Jones (US30)33,055.51 −231.07 (−0.69%)
DAX (DE40) 16,152.86 −71.13 (−0.44%)
FTSE 100 (UK100) 7,762.95 −8.04 (−0.10%)
USD Index 103.56 +0.36 +0.35%
Important events for today:
– New Zealand Retail Sales (m/m) at 01:45 (GMT+3);
– New Zealand RBNZ Interest Rate Decision at 05:00 (GMT+3);
– New Zealand RBNZ Monetary Policy Statement at 05:00 (GMT+3);
– New Zealand RBNZ Press Conference at 06:00 (GMT+3);
– UK Consumer Price Index (m/m) at 09:00 (GMT+3);
– Eurozone German Ifo Business Climate (m/m) at 11:00 (GMT+3);
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
It is certainly shaping up to be another wild week for financial markets thanks to the US debt limit saga. The risk pendulum continues to swing back and forth on this major development with volatility expected to intensify as the so-called default X-date looms.
Markets could be injected with even more volatility thanks to geopolitical tensions, growth concerns, and more data from major economies. Later today, investors will direct their attention towards the minutes from the May FOMC meeting which could offer more clues about the central bank’s next move.
Here are some technical setups to keep an eye on ahead of the Fed minutes.
Dollar holds firm
The dollar has been trading a little firmer despite the impasse in US debt-ceiling negotiations. Bulls seem to be drawing strength from hawkish Fed speakers and technical forces. Prices have turned bullish on the daily charts with support found at 103.00. The upside momentum has already taken prices towards 103.80 with 104.00 the next key level of interest.
EURUSD breakdown alert?
The EURUSD remains bearish on the daily charts with bears grinding down the 1.0760 support level. A solid daily close below this point could signal a decline toward 1.0686. Should bulls push back above 1.8110 – where the 100-day SMA resides, this could open a path back toward 1.0845 and 50-day SMA at 1.0900.
GBPUSD wobbles above 1.2370
Sterling seems to be under pressure despite the UK inflation figures printing higher than expected. A solid breakdown below the 1.2370 level could open a path toward 1.2280. Should 1.2370 prove to be reliable support, prices may rebound back toward 1.2550.
AUDUSD poised to sink further?
The AUDUSD has smashed into the 0.6570 support level. A breakdown below this point may see 0.6480. If bulls are able to defend 0.6570, prices could rebound toward 0.6630.
NZDUSD breaches key support
Our trade of the week (NZDUSD), tumbled this morning after the Reserve Bank of New Zealand hiked rates by 25 basis points and signalled that it could be done with rate hikes. Prices are trading below the 200-day SMA as of writing and could hit 0.6100 in the short term. Below this level may see the NZDUSD hit levels not seen since November 2022 around 0.6070.
USDJPY upwards and onwards
After creating a fresh higher low of around 137.40, USDJPY bulls continue to eye higher levels. Further upside could be expected if a solid daily close above 139.00 is achieved. If prices slip back below 137.40, tough support around the 200-day SMA may limit downside losses.
SPX500_m trapped in wide range.
The index remains trapped within a range with support at 4050 and resistance at 4200. A potent fundamental catalyst may be needed for prices to experience a bullish or bearish breakout.
Gold approaches 50-day SMA
Gold remains heavily influenced by fundamental forces. Prices are choppy and noisy on the daily timeframe. Should $1970 prove to be reliable support, the upside could take prices towards the 50-day SMA and psychological $2000 level. If prices dip back under $1970, gold may see $1945.
Generative AI is the hot new technology behind chatbots and image generators. But how hot is it making the planet?
As an AI researcher, I often worry about the energy costs of building artificial intelligence models. The more powerful the AI, the more energy it takes. What does the emergence of increasingly more powerful generative AI models mean for society’s future carbon footprint?
“Generative” refers to the ability of an AI algorithm to produce complex data. The alternative is “discriminative” AI, which chooses between a fixed number of options and produces just a single number. An example of a discriminative output is choosing whether to approve a loan application.
Generative AI can create much more complex outputs, such as a sentence, a paragraph, an image or even a short video. It has long been used in applications like smart speakers to generate audio responses, or in autocomplete to suggest a search query. However, it only recently gained the ability to generate humanlike language and realistic photos.
AI chatbots and image generators run on thousands of computers housed in data centers like this Google facility in Oregon. Tony Webster/Wikimedia, CC BY-SA
Using more power than ever
The exact energy cost of a single AI model is difficult to estimate, and includes the energy used to manufacture the computing equipment, create the model and use the model in production. In 2019, researchers found that creating a generative AI model called BERT with 110 million parameters consumed the energy of a round-trip transcontinental flight for one person. The number of parameters refers to the size of the model, with larger models generally being more skilled. Researchers estimated that creating the much larger GPT-3, which has 175 billion parameters, consumed 1,287 megawatt hours of electricity and generated 552 tons of carbon dioxide equivalent, the equivalent of 123 gasoline-powered passenger vehicles driven for one year. And that’s just for getting the model ready to launch, before any consumers start using it.
Size is not the only predictor of carbon emissions. The open-access BLOOM model, developed by the BigScience project in France, is similar in size to GPT-3 but has a much lower carbon footprint, consuming 433 MWh of electricity in generating 30 tons of CO2eq. A study by Google found that for the same size, using a more efficient model architecture and processor and a greener data center can reduce the carbon footprint by 100 to 1,000 times.
Larger models do use more energy during their deployment. There is limited data on the carbon footprint of a single generative AI query, but some industry figures estimate it to be four to five times higher than that of a search engine query. As chatbots and image generators become more popular, and as Google and Microsoft incorporate AI language models into their search engines, the number of queries they receive each day could grow exponentially.
AI bots for search
A few years ago, not many people outside of research labs were using models like BERT or GPT. That changed on Nov. 30, 2022, when OpenAI released ChatGPT. According to the latest available data, ChatGPT had over 1.5 billion visits in March 2023. Microsoft incorporated ChatGPT into its search engine, Bing, and made it available to everyone on May 4, 2023. If chatbots become as popular as search engines, the energy costs of deploying the AIs could really add up. But AI assistants have many more uses than just search, such as writing documents, solving math problems and creating marketing campaigns.
Another problem is that AI models need to be continually updated. For example, ChatGPT was only trained on data from up to 2021, so it does not know about anything that happened since then. The carbon footprint of creating ChatGPT isn’t public information, but it is likely much higher than that of GPT-3. If it had to be recreated on a regular basis to update its knowledge, the energy costs would grow even larger.
One upside is that asking a chatbot can be a more direct way to get information than using a search engine. Instead of getting a page full of links, you get a direct answer as you would from a human, assuming issues of accuracy are mitigated. Getting to the information quicker could potentially offset the increased energy use compared to a search engine.
Ways forward
The future is hard to predict, but large generative AI models are here to stay, and people will probably increasingly turn to them for information. For example, if a student needs help solving a math problem now, they ask a tutor or a friend, or consult a textbook. In the future, they will probably ask a chatbot. The same goes for other expert knowledge such as legal advice or medical expertise.
While a single large AI model is not going to ruin the environment, if a thousand companies develop slightly different AI bots for different purposes, each used by millions of customers, the energy use could become an issue. More research is needed to make generative AI more efficient. The good news is that AI can run on renewable energy. By bringing the computation to where green energy is more abundant, or scheduling computation for times of day when renewable energy is more available, emissions can be reduced by a factor of 30 to 40, compared to using a grid dominated by fossil fuels.
Finally, societal pressure may be helpful to encourage companies and research labs to publish the carbon footprints of their AI models, as some already do. In the future, perhaps consumers could even use this information to choose a “greener” chatbot.
The Japanese yen, paired with the US dollar, continues to decline. The current USDJPY quote is 138.37.
The strong US dollar, which is in demand as a safe haven asset, is having a remarkable influence on the Japanese yen.
Fresh Japanese statistics have attracted attention. The PMI report turned out positive: the services sector is reviving thanks to the rebound of the tourist flow into the country. Activity is also increasing in the manufacturing sector.
Both reports are favourable for Japan’s economy, which is still lagging behind its global counterparts in terms of recovery. Providers of services report noticeable demand and a record increase in business activity. Service-oriented businesses rebounded noticeably after Japan lifted restrictions on the entry of foreign tourists to the country.
Earlier, Japan presented its first-quarter GDP report, which also turned out favourable. It is clear that the Japanese economy has gained momentum. This could eventually be a good signal for the JPY.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
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AI chatbots and image generators run on thousands of computers housed in data centers like this Google facility in Oregon.
