Silver is poised to break its 31-year highs, as the metal draws increasingly more speculative heat.

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"I think what you're starting to see is a tremendous amount of speculation in the market, and it's being driven by the silver ETF. Yesterday, the silver ETF traded more than the SPDR (S&P 500 ETF)," said Kevin Grady, a metals trader with MF Global.

In fact, the silver ETF, iShares Silver Trust

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[SLV  Loading...      ()   ] traded nearly 180 million shares Thursday, well above its 10-day average volume of 104 million and more than three times last week's average volume of about 50 million. The SPDR S&P 500 ETF

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[SPY  Loading...      ()   ] trailed again, trading about 120 million shares Thursday, less than its daily average volume of  more than 140 million.

"I think overall when you see so many people coming in and day-trading a market, it usually means you're setting up for a correction," said Grady. He said it would not be surprising to see a 10 percent correction, like earlier this week, but the trend still looks higher.

"I think at this level right now there's so much froth in this market, you get to $50 (silver)

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[SICV1  Loading...      ()   ]. The one thing is that every short in the history of gold

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[GCCV1  Loading...      ()   ] and silver is a loser," said Grady. He said he is also watching the overnight session because London trading is closed Friday, and again on Monday, and the last time the metal closed in on its record level was Monday, when London was closed.

Silver Thursday continued to flame higher, rising nearly 7 percent at its intraday peak and finishing the day up 3.4 percent at $47.52, the highest settlement since the record of $48.70 reached in January, 1980. Silver touched an intraday high of $49.52, just below its all-time intraday high of $50.35 per ounce. Silver is still well below its inflation-adjusted 1980 high $139.88.

"There's a lot of short-covering going on, consternation about the dollar and continued worries about the euro zone and Middle East," said George Gero of RBC Wealth Management.

Traders said Fed Chairman Ben Bernanke waved on the gold and silver rush Wednesday, as he described an environment where the Fed would be accommodative and keep rates low for some time. He also gave a nod to rising inflation, but said he expects it to be temporary. The market however, thinks differently.

"Everybody's fixated on the dollar and interest rates, and what could derail this could be intervention in currencies or a sudden hike in interest rates...That would make the dollar go up, but the way Bernanke indicated low rates going forward means clear sailing for the buyers of silver and gold," said Gero.

Gold gained $14.20 per ounce Thursday, nearly a percent, to finish at a record $1530.80 per ounce.

"There's a big rush to get out of May silver (futures contract) and buy July. That's what's happening, and with silver, there's a lot of short covering going on," said Gero. Investors in May contracts are on notice they must take or make delivery of the metal.

"Certainly, what I can say is the silver market remains supported by the fact that it's illiquid, relative to gold. We haven't seen a great decline in industrial demand, and that's because it's pretty inelastic. If you're going to make a cell phone, you need a little silver," said James Steel, chief commodities strategist with HSBC.

Silver has also been hot because some investors saw it as a cheap proxy for gold, and an inflation play.

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