As Marvel's own site explains, the metal doesn't "go" anywhere - his organic tissue is literally transformed into a steel-like substance.
Colossus can transform his body tissue into an organic, steel-like substance that grants him superhuman strength enabling him to lift/press up to 75 tons and makes him impervious to most injury. His armored form can withstand ballistic penetration as well as temperature extremes from 70º above absolute zero (-390º F) to approximately 9000º F. Colossus cannot become partially or selectively armored; his body is either entirely converted, or not at all.
In his armored form, he is vulnerable to Magneto, but in his non-armored form, his skin and body composition are the same as any normal human, and has no specific weakness to Magneto*.
*In later stories, Magneto is able to affect things by manipulating the electromagnetic fields around them. He could theoretically manipulate a non-armored Colossus like this, but this has nothing to do with Colossus' powers or abilities