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December 18, 2005

Google and the price of gold — what do they have in common?

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Well, let's see.

Google closed Friday at its all–time high, $430.15 a share.

Gold reached a 25–year high of $540.90 an ounce last Monday before dropping back to close at $505.30 on Friday.

So which is more valuable?

Would you rather have a share of Google or an ounce of gold?

Sure, if you had to sell them today you'd opt for the gold and take the extra $110.

But what if you were given the choice of choosing one to sell in a year?

Or five years?

How about ten years?

Not so clear which way to go, is it?

Because let's face it: value exists only as a result of a collective agreement to accept a fantasy as reality.

Google is a company that makes a lot of money, true — but not nearly as much as its share price might indicate, based on how companies are commonly valued.

Gold is precious because people agree that it has an intrinsic value above and beyond its function in manufacturing.

People share a collective hallucination and call it money.

An old, dirty piece of paper with some ink on it buys you food?

How does that work?

Pretty well, apparently, since you've agreed to take part in the fantasy.

Money is truly a mysterious thing and the single best book I've ever read exploring how it came to be such a powerful force is James Buchan's "Frozen Desire: The Meaning of Money."

Yes, since you were wondering: Buchan is the grandson of John Buchan, the great Scottish novelist.

December 18, 2005 at 10:01 AM | Permalink


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