Posted by Don Miller, Money Morning on September 6, 2012 6:51 pm

Gold remains the favorite of precious metals investors, but silver is now a strong number twowith a bullet.

That means you should consider investing in silver now before it goes even higher.

In case you havent noticed, after wallowing around in the mid-20s for months, silver prices have shot back over $30 an ounce.

And thanks to wildly bullish technical and fundamental indicators, silver could soon retest its 2011 high, or even blow through it.

If that happens, silvers run-up will hand investors a fortune, so heres how you can cash in.

Turnaround in Silver/Gold Ratio

Historically, the price of silver per ounce has usually been equal to around 1/16th of an ounce of gold,meaning it took 16 ounces of silver to equal the value of a single ounce of gold.

But over the past decade, gold has taken off, trading as high as 60-70 times the price of silver.

That is, until last year. As silver prices rose to nearly $50 an ounce, the ratio fell to 30-1.

But as prices for the white metal settled near $27, the ratio has skyrocketed back up.

Right now, you get 55 times more silver for your money than gold.

But it would still have to triple in price to even sniff where it should be in relation to gold.

And there are signs that this is just whats going to happen.

Strong Signals for Silver Price Rally

From a technical viewpoint, the rally in silver may be just beginning.

You see, the silver futures markets are in whats known as backwardization.

Its a rare condition that occurs when the current cash price is higher than distant contract prices.

In other words, it costs more to buy silver today than it would to buy silver a month from now, or six months from now.

For instance, the September 2012 silver contract closed on Aug. 27 at $30.90. The December 2012 contract closed the same day at $29.64. And the March 2013 contract closed at $27.28.

Theres only one reason for this theres a shortage of physical silver on the open market.

Fact is, silver demand is on the verge of hitting historic highs.

Investors bought 797 tons of silver-backed exchange-traded products this year. They now hold 18,093 tons, or more than eight months of global mine output, according to data compiled by Bloomberg News.

That brings total silver assets to just 2.9% below the record 18,639 tons held in April 2011. Investors will likely buy another 500 tons in 2013, Barclays PLC (ADR NYSE: BCS) and Morgan Stanley (NYSE: MS) predict.

There are also signs that industrial demand is improving. Unlike gold, silver has a bevy of critical industrial uses.

Theres silver in just about every electronic device out there from televisions to computers to cellphones to tablets.

But since July 3, stockpiles in warehouses dropped 6.5%, posting a four-month low on Aug. 8, according to COMEX. Inventories had grown every month since November to 147.1 million ounces.

In other words, silver owners arent selling, theyre hoarding.

On top of all that, the latest Fed minutes suggest the central bank is ready to begin another round of quantitative easing, which has been favorable for silver and gold. Europe and China are also in stimulus mode.

The Two Best Ways for Investing in Silver

Like gold, theres a variety of options for investing in silver but two in particular stand out from the crowd.

One popular option for silver ownership is through exchange-traded funds (ETFs).

The iShares Silver Trust ETF (NYSEArca: SLV) has over $9 billion in assets and trades more than 9 million shares daily.

SLV shares represent approximately 1.0 silver ounce each and are easy to buy and sell through your broker. The ETF has gained approximately 110% since inception, delivering both performance and liquidity.

But ETFs can only establish a paper claim on silver.

Fact is, theres no substitute for owning physical silver in times of crisis.

But its simply not practical to own large amounts of bullion and keep it in your house. Thats why owning a combination of both paper (ETFs) and a small amount of coinage is the way to go.

You can buy junk silver bags of pre-1965 dimes, quarters, and half-dollars that contain about 90% silver.

Collectible silver coins often have premiums of 25%-50% or more than the spot price of silver.

But because they dont have collectible value, you can buy junk coins now at just 1%-2% above the current spot-market price for an ounce of silver.

They usually come in $1,000 face-value bags worth about $23,600 at todays prices. But many dealers will split them into smaller bags.

If you choose SLV and junk when investing in silver, you get the best of both worlds: diversification and the comfort of holding the physical metal in your hands.

Don Miller Source: Money Morning

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