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A recent headline from Australia said "Invest in Gold or Your Bank Account Could be Cyprused." We agree with the second half of that statement, but do not agree with the implied statement in the first half.

Cyprus has introduced capital controls that have and will continue to create economic losses for bank depositors there, even for those who do not have an immediate haircut.

Other countries that have introduced capital controls have generally, if not universally, caused economic losses among those who hold the controlled currency. Think, Argentina, Cuba, Iceland as three examples.

The simmering fear is now that a European country within the Eurozone has introduced capital controls, the political barriers to doing it elsewhere are lower than before.

We don't imagine that the bond holders of Chrysler and GM whose contractual rights were ignored by Washington in the 2008-2009 bailouts thought that could ever happen. In a sort of way, they were Cyprused.

The owners of physical gold in the USA in 1933 who were forced by law to turn in their gold for paper dollars were Cyprused.

Why then would anyone believe that just because gold is held in an ETF that it could not be Cyprused too.

Hold gold physically and it can be taken away from you by a government agent who loads it into a truck. Hold gold through beneficial rights to unallocated bars in a vault through an ETF, and a government agent can push a few keys on a keyboard and transfer some of those shares to government accounts.

A government could also criminalize the acceptance of gold as payment for any good or service as a way to smoke out those with a hidden gold hoard.

It doesn't even require a government action. According to a letter from ABN-AMRO to another custodian bank (translation via ZeroHedge), that bank simply announced that they will not continue providing physical delivery - that the gold is safe with them, but not available for delivery.

Who knows just exactly why or how that came about, and what it ultimately means for beneficial owners, but that's just one bank reacting in the same week that Cyprus stopped allowing cash withdrawals.

Coincidence? - Maybe. Peak preview of the possibilities when the "you know what" hits the fan? - Maybe. Minor compared to what a government could do? - Absolutely.

It may not happen, but it is an illusion to believe that just because it is physical gold or an unallocated gold holding via an ETF or other investment fund, that gold cannot be Cyprused.

Are we saying don't own gold? - No. Are we saying don't own gold ETFs? No.

We are saying do not have a false sense of security that there is something magical about gold in any form of ownership that could not be the target of a government confiscation or capital controls program, if a government has its back to the wall.

Don't put all or too many of your eggs in the gold basket on the basis that it is safe. It may hold its value, but you may not be allowed to hold it.

Taking away your gold would simply be called "fair burden sharing," "social justice" or simply "for the greater good."

Directly Relevant ETFs: GLD, IAU, SGOL

Disclosure: QVM has positions in GLD as of the creation date of this article (March 27, 2013). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, but are compensated retroactively by Seeking Alpha based on readership of this specific article.

General Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.

Source: Can Your Gold ETF Holdings Be 'Cyprused?' Yes