Is California the New Greece?

California’s recent budget struggles are well known. For years the state has struggled with a constitutional amendment that required all new spending to be voter approved in an ongoing series of have-it-now-pay-for-it-later referendums.

Well, combined with some shady accounting practices, which are apparently all the rage these days, it looks like California’s financial crisis is worse than expected. It’s a familiar refrain: Revenues down, expeditures up, borrow until tomorrow and we’ll hope the problems go away. Only it’s not going away. The budget defect has balloon from a projected six billion to more recently nine billion to the most estimate of 16 billion dollars.

That’s a lot of dollars.

Gov. Jerry Brown is trying to pass a quarter-cent sales tax increase and an income tax increase on those earners making over $250,000 a year. But real math (the kind Mr. Brown hopes to implement) doesn’t stand a chance against the fuzzy math that got them into this mess…California is so far behind the debt eight ball, they may never get out of the debt cycle.

So how does this affect the price of gold? Great question. Nobody knows. But intuitively, I can tell you that continued accumulation of debt by all nations and all states bodes well for the LONG term price of gold. But who knows what LONG TERM means. In the short term, the European debt crisis and continued sales of huge gold reserves by Japan is ensuring that the dollar remains strong against the euro, which forces down the price of gold.

For the short term, these reduced prices present a great buying opportunity for gold. All prices are down, so indeed silver, platinum and other commodities in addition to gold should be considered for portfolios to hedge against inflation.

It’s impossible to tell what will happen next with regard to gold prices, but a pull back is good for the market and good for investors. I would encourage investors to buy gold soon. Hold what you have – do not sell your gold bullion now. Use this dip to acquire more gold.