An Ounce of Gold or a Share of Google?

Swapping a share of Google (NASDAQ: GOOGL  ) for an ounce of gold doesn't seem like a fair trade these days.

The spot bullion price for an ounce of gold closed at $1,243.50 yesterday. The world's leading search engine wrapped up its trading day at $882.31. That's a big gap, but that seems to be narrowing as gold falls out of favor and investors rally around the potential of the dot-com darling.

These do seem to be passing ships. A year ago, Google closed at $580.47, and an ounce of the yellow stuff was going for nearly three times as much at $1,592.

What a difference a year makes. Google's 52% surge and gold's 22% drop find us barreling toward an intersection where Google's stock passes an ounce of gold. Another 52% pop for Google would hurl it past $1,340. Another 22% slide for gold would send it below $970.

The meeting point isn't likely to happen in the coming year, though. Google is unlikely to repeat last year's ascent. Gold is unlikely to repeat its fall.

However, at least I no longer feel completely embarrassed about my prediction made back in 2005 that Google would overtake gold in 10 years.

It can happen.

"Would you rather own a share of Google or an ounce of gold," I asked at the time. "Here's the stipulation: You have to put your choice under a mattress for the next 10 years. That's right. I'm taking something as volatile as Google and as cyclical as a gold coin and forcing you into a long-term commitment."

Google was at $403.54 at the time. An ounce of gold was trading hands at $496, crossing the $500 mark the following day.

Both investments have panned out nicely. Google's stock is trading 119% higher, and gold has risen a hearty 151%. Google hasn't issued any dividends along the way, so it's clearly a victory for the gold bugs since late 2005. However, I still like my chances with nearly 29 months left to go.

Momentum is on my side.

For starters, the factors that led to gold's surge included booming emerging market economies and the collapse of the housing market that sent investors scurrying for a new hard asset class. Those tailwinds have settled down. Along the way, Google is only getting stronger.

Forget this year where Google's growth is padded by last year's Motorola acquisition. Analysts see revenue and earnings climbing 17% and 16%, respectively, at Big G next year. Google's actually fetching 16.5 times next year's projected profitability, splitting the difference. That's not ridiculously cheap, but it's certainly not expensive.

Google's market leadership in search, online advertising, video sharing, and mobile operating systems make it worthy of a market premium.

Can there be geopolitical upheavals or inflation hiccups that send gold skyrocketing again? Absolutely. However, the safer bet is on continued growth for Google.

We'll see how the next two years play out.

The gold touch
Gold has outshined the stock market with strong returns since 2000, but more recently has given way to big declines. The Motley Fool's new free report, "The Best Way to Play Gold Right Now," dissects the recent volatility and provides a guide for gold investing. Click here to read the full report today!


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