By Melissa Pistilli-Exclusive to Silver Investing News

Silver and gold prices rose slightly in early trading Monday, but those gains were quickly erased as a rebounding dollar forced gold down below the psychological support level of $1,100 an ounce to close at $1,092.30 in New York, and silver dropped below the crucial $17.00 level to as low as $16.93 before closing at $17.01 an ounce.

The dollar is continuing its December rally after hitting a 15-month low November 26. Traders are betting on rising Fed rates in 2010 and an improving economy. Debt concerns in Greece and Dubai are also fueling the dollars momentum.

Analysts expect a stronger dollar to further pressure precious metals prices for the remainder of the year and perhaps into the early part of 2010, but gold and silver both will see some support from bargain hunting speculators and long-term investors.

“We would look for speculative and investment bargain hunting buying to provide further support in the coming sessions, although with the stronger dollar still the primary driving force, the metal remains at risk to a dip back to the $1,050 a troy ounce to $1,080-per-ounce area,” said James Moore, TheBullionDesk.com analyst.

Commerzbank analysts also see the “probable year-end gold price” at about $1,050 an ounce. Gold’s retreat will no doubt push silver prices lower in the short-term as well.

Despite the dollar-induced drop, the price of silver is still up 51 per cent this year and its long-term fundamentals are looking strong as we move into 2010.

While gold and the dollar do their dance, many precious metals analysts expect the dollar to trip on out-of-control money printing, sending investors to the security of the yellow metal and its cousin, silver. A huge and growing US deficit, inflation risks, growing demand from investment and central banks are all positive indicators for continued strength in the precious metals markets.

What sets silver apart from gold is its industrial usage and this distinction will really come to the forefront in 2010 as depressed supplies due to production cuts in both mining and in end-use applications meets growing demand from emerging and recovering markets. This year, especially if inflation fears are quelled and the dollar does best gold, we may see the gold to silver ratio really begin to narrow, as silver stands to benefit from an improving economy.

ETFs and Futures (long term vs. short term)

Besides physical silver and mining stocks, two other very common and lucrative ways to take advantage of rising silver prices are futures contracts and exchange-traded funds (ETFs).

Which option you choose depends on whether you’re a risk-loving trader or a long-term investor.

The futures market is the arena for short-term speculative gambles with the potential for a big payoff or a costly lesson. While the market was originally created to allow commercial users to avoid price swings by purchasing materials at contracted prices, individual traders use the market to bet on short term price directions without actually having to take a position of the physical commodity. Instead they choose to take the cash difference on the contract price (or pay the loss, if not so lucky).

This is obviously a very risky way to play with money and not an advisable move for those new to the market or not financially prepared to suffer huge losses.

Precious metals guru David Levenstein makes an excellent point in writing about the inherent risks in the futures market:

“The problem with most markets is that, in the short-term, many of the moves are unpredictable. For example, how many of you knew that Dubai was going to default followed by Greece. And, this all happened after non-farm payroll figures were positive, followed by good retail sales in the US.”

For long-term investors who aren’t the least bit shaken by price fluctuations and are confident on silver’s fundamentals, ETFs offer a safer and more convenient form of investing than futures contracts or purchasing physical metal.

Silver ETFs were introduced to the investment scene very recently and became popular rather quickly. Designed to the track the spot price of silver, silver ETFs are mutual funds back by insured physical silver.

Two of the most popular silver ETFs are iShares Silver Trust (SLV) and ETF Securities’ Physical Silver Shares (SIVR). SLV is the largest of the silver ETFs. SIVR was created in July of this year as competition for SLV and already has $174 million in assets. The expense ratio for SIVR (0.30 per cent) is lower than that of SLV (0.50 per cent).