There have been significant developments in the Gold and Silver markets recently.
1. Every paper gold certificate [or in this case - warrant] is supposed to backed equal amount of the physical metal, which is set aside in a depository and quarantined from any further transaction.
2. Various commentators have raised concerns that instead of this process, bullion banks & large gold trading houses are trading along similar lines as "fractional reserve banking."
see this link for an video explaining Fractional Reserve Banking - http://vodpod.com/watch/2459391-magic-money-fractional-reserve-banking
In this system, the bank holds for e.g. 10% cash reserves/gold equivalent and then lends out 9 times that amount, and they then charge interest on this "virtual" money.
3. So in the Gold market, it is claimed that if a bullion dealer has for e.g. $1,000 in gold, they will then issue warrants or "gold certificates" for a multiple of that amount of gold.
4. This means that for every 1 oz of physical gold held, there is potentially anywhere from 3 - 8 similar certificates or "claims" on that same 1 oz of gold.
5. Up until now, trading happens for example, when the underlying price of the physical commodity goes up - then people holding "long" paper derivatives onsell this paper/certificate to someone else, thus making a profit on the transaction.
6. BUT - this system only works when the paper is onsold - if the holder of the certificate wants to take delivery of the underlying physical commodity -- IMAGINE what would happen if these 3 - 8 people turn up with paper certifying them as the "owners" of this 1 oz of gold.
7. This is when pandemonium sets in.....
8. Best advice is to be wary of any warrants/certificates/promissary notes, because it ends up like musical chairs - some poor bunnies lose out.
Here are further sources that explain current concerns.