All right, silver prices are going up -- in fact, to record levels this year. But the silver-to-gold ratio, historically an excellent indicator of price, shows that despite the robust market, there is still a lot of money to be made by adding silver to your portfolio.

During a slow spell, like the one in 2008, an ounce of gold is worth as much as up to 90 ounces of silver. At its best, and when not being offered at inflated prices, 15-20 ounces of silver can buy an ounce of gold. We know from experience that if the ratio falls below that, the situation is becoming volatile and that there's a need for caution. So what's happening now? This past Labor Day weekend -- for the first time in 13 years - silver exceeded the key resistance level of 40. Historically, once silver breaches this level, the gold-to-silver ratio will continue to fall until it reaches the optimal one of 15-20. But please remember that a low gold-to-silver ratio does not necessarily bode well for silver and badly for gold. It could just as easily mean that both gold and silver prices are rising, but the latter at a faster rate.

Now that the gold to silver ratio has breached 40, it will continue to retreat and all signals point to this happening at a very aggressive pace. So will prices reach their peak next month, or next year? Not likely, but it is a pretty good bet that silver will get there in the next few years. So should you decide on slowly buying into this market, so much the better for you and your portfolio.

Why the greater-than-ever demand for silver? A few of the more important reasons:

1. Investors are feeling very uncertain about paper money.
2. Nations like China are excited about buying into a commodity of such reliable intrinsic value, but since it's almost impossible to find silver bullion in their country today, the Chinese are buying up as much silver and gold as they can get their hands on as a hedge against the uncertain US dollar. Sure, they're sitting on $2.5 trillion of U.S debt, but they fear that it could become completely worthless in the future.
3. Smaller scale investors worried about inflation and worldwide unrest, but unwilling or unable to buy into gold, are stocking up on silver.
4. The industrial use of silver is growing: in silverware and jewelry, in, of course, coinage, as well as in photography. The electronics industry consumes 45% of the world's demand for silver and it has medical applications as well. This means that the inventory of physical silver is shrinking.

Please remember: silver has great intrinsic value. In the decade of 1971-1981, the US dollar lost more than half of its value - but the price of silver rose five times.