For the less-than-knowledgeable: a short contract is one where you have sold gold in advance, and promise to deliver it at the contract expiration, usually a few months but possibly as long as a few years.
The other side of this trade is the "long", who is either betting that gold will go up before the contract expires, or actually wants gold to be delivered to him at contract expiration. Gold bugs call this "paper gold" or "golden promises" because it isn't really gold until delivery.
Most such contracts are merely treated as bets and are settled in cash or rolled over into the next contract period before expiration. Longs that hold their contracts to expiration are said to "stand for delivery". In other words, the contract stands, and the gold is to be delivered. If you stand for delivery you pay the full contract amount, you get a warehouse receipt, which you can take to the COMEX whorehouse and get a real bar of gold.
If the bullion banks are truly net short 27,000,000 ounces of gold, that's $27,000,000,000 dollars (billion). COMEX probably has a few million ounces that are available for delivery at any time; these are called "registered". If a significant portion of longs stand for delivery, COMEX could be drained.
The situation in silver seems far worse. Interestingly, a relevant article was posted to seekingalpha just today:
http://seekingalpha.com/article/1615...or-desperation
Before that happens, the rules will be changed to make it appear that they're not really running out of gold. They will declare "cash settlement only" or some other new rule "in order to maintain the integrity of the exchanges". Of course, if they do this then it is obvious that it is just a rigged casino and not a place where any real monetary metals are exchanged. This type of default is a gold bug's dream come true. The value of actual physical metal is expected under these conditions to decouple from the exchange paper gold schemes and skyrocket.