ETFs no more hold physical gold than banks hold the physical cash of their depositors. Sure, if you go down and exchange your ETF individually you can get your gold, but if a lot of people decided to get physical they'd find out they were holding nothing but an empty bag of unkept promises.
http://seekingalpha.com/article/1362291-the-end-of-fractional-reserve-gold-is-nigh
Investors in the Gold ETF - GLD liquidated 300 tons of the metal this year.
The above sentence was from the original post. As far as I know, GLD holds enough gold to redeem every share.