Can I create a Google Gmail group based on my contacts?

For some strange reason I am reminded of the line in Spiderman, "With great power comes great responsibility". :-)

There is a way to do what you want but I worry that you're talking about some sort of approach to spamming, where you email back and forth with lots of people in Gmail then somehow convert that into a mailing list. Anyway, I'll assume that's not, in fact, what you are going to do and that instead you are trying to make it easy to create a legitimate group.

The first step is to click on "contacts" on the left side of the main Google Gmail window, which takes you to their contact management system. It looks like this:

It's not obvious, but if you check off a couple of your contacts - or all of them, I suppose - you can then click on the Groups button and choose Add to... and New group...:

Now you get to name the group:

and it shows up on the left side of your contact list and is accessible by simply typing in the first few letters of its name in the Compose window.

As far as I can ascertain, that's as far as you can get with your request. You now have a group you can use, but turning that into an externally-accessible list is beyond what Google offers within the realm of Google Mail itself. You can set up a Google Group (see create a Google Group), but you still have to at least do some copy and paste action: copy all the email addresses from Gmail, then paste them into the "Enter email addresses to add as members" box in the Google Groups area.