Yes & No.

Gold has its dark day as well. Gold never rise steadily period from about 1980 to 2002. It stagnant throughout 20+ years. While others investment asset give more than 200-300% (even for pathetic FD) or even more for properties, stocks etc.
Gold is not a backbone of monetory system.
Printed money is not backed by gold. Although more gold in the coffer can instill confidence on your money. But printed money is not backed by gold.
Also there is not enough gold to back all the money out there.
Gold exist or not, doesn't alter the current financial system.
Gold is just another investment class out there in the financial system.

Use gold to measure against goods, price never change?
I don't know the answer, but I only know,
1980 1ounce of gold cost USD 300, while a bowl of hawker mee, cost RM0.20
2011 1ounce of gold cost USD 1700, while a bowl of hawker mee, cost Rm4-5.

So price got chance or not? 

oh yess, the goldwagon is back, finally i wld say!!! time to board but with mix feeling. why?? bcos of this:-

sold off at 1744(pbb163.82), now enter 1572(uob164.00).. folks! u see what i'm puzzling?

1) & 2) Yes, that's the kind of statement is that I want to highlight. 
Both side of risk involved for paper and physical.

Paper gold and physical gold has same value if nothing goes wrong aka default.
Paper gold + trust (no default) is equivalent to physical gold.
I use the word equivalent (not same), as it is in money term.

They do not have different value in money term.
When Comex gold futures is USD1600, it means physical gold trade will be follow USD1600 pricing.

Either Paper gold totally lost the value (default), or same value with physical (no default),
the difference is between either same or zero.

I don't know why you all want to convince me to turn paper gold into physical, I fully aware the risk of default. 
I may convert or invest in physical, which depended on situation and financial condition out there, who knows?
I thanks you all to share the physical advantage story as well.

My view, despite debt problem around, the chance of default of paper gold is slimmer than plane crash. The highly solution is to let inflation solve the debt problem on its own, inflation means all asset class price inflated, including gold, and paper gold.
Inflation doesn't mean bank must be defaulted, instead inflation can solve the debt problem, and banks can earn even more money in the process.

Do I worry of bank default? Can bank default?
Yes.
But I don't scare of plane crash until don't want to ride a plane.

You don't know the experience others went through, especially last 20-30 years time, whereby gold has fail misery to hedge against inflation even until now, as well as experience of theft, natural disaster and other issue, that has driven some people into paper gold instead of physical. 
Yes, physical storage risk can be controlled up to certain extend, but I do not agree can be totally controlled as well, same like bank default that out of our control.

I hope this end the debate paper vs physical.
I never said paper gold is best, nor physical is totally risky, I just offer some view on it. 

Invest in properties