Silver rallied an impressive 4.6% this week to settle at $19.92 per ounce, its highest close since March 17th, 2008 and its second consecutive week of gains.

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There are several reasons for this run-up, including demand for the physical metal. Exchange-traded funds added 3 million ounces to their silver holdings between Friday, August 27th and Thursday, September 2nd according to data tracked by the CPM Group. iShare Silver Trust (SLV) today, the largest silver ETF in the United States traded to its highest levels since March, 2008.

Physical demand is also being generated by the manufacturing sector and the futures markets. Silver is used in the production of chips and we are seeing a "…37% year over year increase in semiconductor sales," says Rohit Savant, Sr. Commodity Analyst at CPM Group. Production of semiconductors is just "…one of many areas where you are seeing an increase in fabrication demand."

In addition, the September futures contract is being rolled into December but not all investors are rolling their positions. So far, investors have taken delivery of about 3.5 million ounces — not a low number according to Rohit.

And then there are the technicals.

"While gold steals the headlines, we believe that the so-called second-place metal, silver, is in a very strong technical position", says Richard Ross, Auerbach Grayson's Global Technical Strategist. "…We believe that a breakout above $20 should lead to a retest of the March 2008 high around $21.35 and potentially test the 1980 post Hunt Brothers reactionary high around $23.50."

And proving that all assets are not perfectly correlated, the last time silver traded at these levels, the S&P 500 was around the 1275 level or, about 15.5% higher than it is today.

Certainly not in a comfortable trading range, silver is one asset worth watching next week.