The 24-year-old was competing in a biathlon sprint race - which combines cross-country skiing with shooting at targets - at Oberhof when his rifle sight became blocked by snow.
As horrified spectators and TV viewers watched on, Graf turned the rifle around and aimed it at his mouth while he tried to blow away the obstruction.
Biathletes' weapons are loaded with live ammunition and can be triggered by as little as half a kilogramme of pressure.
Graf was disqualified from the race, and British Eurosport expert Mike Dixon said the sport's governing body, the IBU, could hand him a lengthy ban.
Dixon, who represented Great Britain in biathlon and cross-country skiing at six Winter Olympic Games from 1984 to 2002, explained just how dangerous Graf's actions were.
"The bullet's exit speed is 500 miles per hour, it's deadly, and you absolutely do not want to be looking down the sharp end of that barrel," he said.
"If you have snow on your sights you have to keep the rifle pointing down the range and then blow down the sight from the safe side - don't ever turn the rifle towards your head.
"And even the arc that crosses through the crowd - you never, ever point the rifle towards the spectators."
The 10km sprint race was won by Russia's Dmitry Malyshko.