Although I'm not a lifeguard, I can tell a blue sky from a thunderstorm.

Following a series of astonishing revelations over recent weeks, which have further demolished common misperceptions regarding the structure of the global gold and silver markets, you don't have to carry a whistle or dab zinc on your nose to know that investors need to climb out of the unallocated gold pool.

Scores of investors attempt to procure gold and silver exposure through unallocated bullion holdings, often referred to as pooled accounts. Touting lower storage or administrative fees than allocated accounts, these unallocated holdings are generally presented as similarly secure, with the major difference being that investors stake claim merely to a given quantity of bullion, rather than specific numbered pieces (as in allocated accounts).

Check for water before you dive in

Here's where the storm clouds begin to appear. Back in 2008, around the same time that I was documenting a palpable shortage of physical supply in the marketplace, investor Harvey Organ's son, Lenny, noticed a huge discrepancy between spot prices for silver and the substantial premiums being charged for physical bullion at the time.

Concerned for his family's bullion holdings, and despite reassurance from his father that the metal had to be there, Lenny sought access to the main bullion vault of ScotiaMocatta, a division of Bank of Nova Scotia (NYSE: BNS) . On Sept. 3, 2008, Lenny and his bullion broker were reportedly granted entry into the only official bullion bank storage facility in Canada.

According to Lenny, the unallocated portion of the vault's holdings was minimal, permitting a simple visual inventory that suggests a present-day market value beneath $100 million. In an interview with King World News, Harvey and Lenny Organ last week revealed that this was why Harvey had been invited to testify at last month's landmark hearings in Washington, D.C., conducted by the Commodity Futures Trading Commission (CFTC).

Empty vaults mean empty promises

Digging further into this breaking story, I spoke with Adrian Douglas, the GATA (Gold Antitrust Action Committee) board member who assisted Harvey Organ at the CFTC hearing. Douglas explained:

It highlights that unallocated isn't what most people think it is. I think most people would be shocked. They're buying this gold and silver expecting it to be a low-risk investment, when in fact it's a high-risk investment. It's an unsecured investment, backed only by the assets of the bank.

The stinging irony here, of course, is that investors seek out precious-metals exposure precisely to escape the sorts of shenanigans that have proven so very prevalent among other sorts of financial instruments over the past few years. Douglas continued:

This is not to say that all unallocated storage is like this, but investors need to do their due diligence and find out. Otherwise, investors are essentially making interest-free loans to the bank, with which they might buy gold and silver if they see fit. Actually, it's a negative interest rate, because you have to pay them so-called storage and insurance fees.

A troy ounce of context

The presumed sanctity of unallocated gold and silver holdings was called into serious question last month, when commodity consultant Jeffrey Christian insinuated that supply in the over-the-counter (OTC) metals market is leveraged 100-to-1 over the actual physical supply of underlying metal (see the first link above).

At the same hearing, GATA chairman Bill Murphy presented allegations of gold and silver price-suppression by bullion banks such as JPMorgan Chase (NYSE: JPM) and HSBC (NYSE: HBC) . Revelations from London metals trader (turned whistleblower) Andrew Maguire heaped additional corroboration onto evidence that GATA has been building for more than a decade. As a result, I urged investors to give careful consideration to their choice of bullion investment vehicles, and pointed out that the custodians of popular proxies like the SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV) are the very same bullion banks alleged by GATA to maintain massive short positions on the COMEX.

Keep your head above water

If you hold unallocated gold or silver bullion certificates issued by one of the major bullion banks, I urge you to consider that this segment of the market may collectively lack an adequate physical supply of metal to satisfy claims, in the event that any significant proportion of investors tender their paper certificates for physical bullion.

If the alleged leverage pervading the over-the-counter (OTC) markets and the futures exchanges is ground to a halt by increasing physical demand, the scarcity of supply will become more pronounced still. Just as the banks essentially wagered that mortgage values would never decline, it seems that a similarly dangerous wager may yet be on the table: a bet that gold and silver investors will never call the bluff of a massive paper-based shell game.