The last time this happened in this sector was 14 years ago, in 1997.

Back then, Warren Buffett had investments in this sector during the phenomenon (and made millions from it). Meanwhile, investors watched the prevailing prices in the sector soar from $4.25 an ounce to above $7.00.

That’s not surprising. You see, when this phenomenon rears its head, it usually means one thing: demand is soaring. And we all know soaring demand means rising prices.

That’s exactly what we’re seeing in the silver market right now.

To be sure, demand for American Eagle silver bullion coins — perhaps the easiest way to buy the metal — has reached unprecedented levels. More than 6.4 million coins were sold in January. And there has been extremely unusual activity in the trading pits in recent weeks. Specifically, spot prices for immediate delivery have surpassed those for future delivery. Usually, futures prices are higher because of storage costs and other factors.

The rare flip-flop (known as backwardation) means traders are willing to pay a premium to get their hands on silver today rather than a few months from now. This highly unusual situation hints at physical supply shortage fears and could be a precursor of even bigger gains.

In 1997-98, silver rose more than 65% in a matter of eight months on the heels of backwardation. Back then, demand was spurred by a substantial investment from Warren Buffett.

He and Berkshire Hathaway (NYSE: BRK-B) acquired a huge position in silver of 130 million ounces. Millions of other investors rode his coattails into the silver market, creating even more demand for the metal.

But Berkshire sold its silver in 2006. Today, all that demand is now coming from elsewhere.

Aside from shielding investors from inflation, silver is also prized for its electrical and thermal conductivity and other unique properties. With commercial applications ranging from photography to medicine, industrial usage eats up approximately 60% of the world’s supply each year.

Until recently, the industrial pool of demand has been playing tug-of-war with the inflation/dollar crowd. With economic growth back on track, these buyers are working together to pull prices higher.

Action to Take –> It shouldn’t be surprising, then, that silver prices have soared to new 30-year highs above $35 per ounce. But within the next couple of years, I think the metal could flirt with $50.

Note: If you want to know more about silver’s bull run, I’ll be discussing in more detail the ascent of silver and the long-term trend in real assets like oil, gold, food and even uranium, in my upcoming free webcast. Go here for the details and to register.