How can an algorithmic artifact be a proxy for physical gold?
Someone has to update the network manually on the amount of gold in existence, since the digital network can't figure it itself.
This means: trust.
Trust & cryptocurrencies don't mix.
Exactly. This means there has to be a central place you trust with your gold.
Lets just assume we can trust this entity and it is a private organization for another argument of why this is bad.
The only way the e-currency/gold angle has value is if you can actually redeem your currency. What would keep people from doing this? Only if the exchange price was greater than the gold price. If it isn't, then people exchange it out for their gold and what does teh entity do? What is the business model of this "gold backed e-currency based entity" ?
It makes little sense, except possibly to remove volatility out of the market by pegging the price to gold. However, how does the backer of the coins make their money? They have to keep a well guarded warehouse hosting millions of dollars in gold. I just can't see this working out.