Magnetic putty is a stretchable, moldable putty that contains particles whose magnetic poles line up in the presence of a magnetic metal.
Because it is pliable, it will fully encompass any metal object placed near it. Really. It's pretty creepy.
It's available for purchase at Crazy Aaron's Putty World.
Here's a video from Joey Shanks, sped up slightly:
Magnetic Putty Magic (Extended Cut) | Shanks FX | PBS Digital Studios from Joey Shanks on Vimeo.