In everyday conversations I hear people say silver (gold too) could never be considered money as it is too volatile and should be considered a 'risky, speculative investment'. In my opinion gold and silver should be considered 'real money' while fiat is phony, manipulated money. But...... I am thinking - why is silver 'so volatile'?
My thoughts...... Silver supply is pretty stable and easy to estimate. I think most of the volatility is due to the 'expected demand for silver' and its rarity. Basic economic theory states that a price is discovered as supply and demand comes together. Silver supply is relatively stable. Current demand is very easy to calculate or estimate. With futures markets the demand is impossible to estimate as future demand changes depending on world events, economic events and consumer sentiments. The instability of world events (wars, conflicts, embargo's, austerity measures, etc) and fiat monies (worldwide QE/money printing) make it much harder to estimate the future demand for silver. What would happen if 'the masses lost faith/rejected fiat and moved into silver/gold? What if just one large country/economy lost faith (Europe, U.S., Japan, India, China, etc.)?
More about the supply side of silver: It appears there are about 800 million ounces of silver mined per year worldwide. There are around 7 billion people in the world. Thus, if every person in the world decided to purchase just 1/10 of one ounce of silver PER YEAR there would not be enough mined to handle this demand. 1/10 of one ounce of silver per person per year would cause a shortage!
Based on the above I understand the volatility of silver. A small change in expected future individual investor demand could cause massive supply shortages. I do not understand the low price though. I surmise it is because the general population and 'average Joe' still places a lot of trust in the 'worldwide fiat system'. Just imagine if there was a 'flock away from fiat and into silver'! Where would that place the price of one ounce of silver?