It's true - silver prices are on the upswing -- in fact, as of this year, to record levels. But the silver-to-gold ratio, traditionally the best indicator of price, shows that despite the bullish market, you would still be doing yourself a favor by adding silver to your portfolio.

During a sluggish period, an ounce of gold is worth as much as up to 90 ounces of silver. On the other hand, at its best, 15-20 ounces of silver can buy an ounce of gold. We know from experience that if the ratio falls below that, you'd better be careful. So what's going on now? This past Labor Day weekend -- for the first time in well over a decade - silver surpassed the key resistance level of 40. Historically, once silver exceeds this level, the silver-to-gold ratio will continue to drop until it reaches the most desirable one of 15-20. But please note that a low gold-to-silver ratio does not necessarily portend well for silver and badly for gold. Another way to look at it: both gold and silver prices are going up, the latter at a faster rate.

Now that the gold-to-silver ratio has topped 40, it should continue to retreat and everything signals that this will proceed at a vigorous pace. So will prices max out in the near future? The best answer is that silver will reach that point sometime in the next few years. That means that you should begin adding silver to your portfolio at a gradual pace.

The key reasons for the greater-than-ever demand for silver:

1. Investors are feeling very uneasy about paper money now.
2. Nations like China are keyed up about buying into such an intrinsically reliable commodity, but since silver bullion is so rare in their country now, the Chinese are purchasing as much silver and gold as they can as insurance against the uncertain US dollar. They may be holding $2.5 trillion of U.S debt, but they're afraid that it might become completely worthless at some future date.
3. Smaller scale investors are worried about inflation and international turbulence, but unwilling or unable to purchase gold, are settling on silver.
4. The industrial use of silver is increasing by leaps and bounds: in silverware, jewelry, coinage and photography. The electronics industry consumes 45% of the world's demand for silver and in addition, this precious metal has medical uses. This means that the world's silver supply is diminishing.
The most important thing to remember: silver has great intrinsic value.