Financial institutions have an insiduous habit of lending out more money than they actually have. For instanace let's say a bank has one million dollars of physical bank deposits. In an effort to make more money off of interest, they decided to loan 10 million dollars. They do this so they can collect interest off of the $10 miliion.
They do the same thing with gold. They have $1miliion in gold, but they lease the gold at an interest rate then take that interest and buy US Treasuries or other investment vehicle so they can make money. Problems arise when the paper they sell gets turned in and someone wants their gold.
Chris Martenson describes this scheme: