The Santa Clara/San Jose area was nearly depopulated, and the unharvested, deserted fields spoke poignantly of the belief that "the chances were supposed to be better in the fields of real gold, than those of the golden grain." By the end of 1848, some residents returned, having not been successful enough to overcome the hardships and deprivation they encountered and found that the price of provisions had soared dramatically due to the unharvested crops. The price of flour climbed to $20 a barrel, and Santa Clara's mission pear orchard gained a major economic importance because it produced quantities of the golden fruit. As labor of every kind became very costly, the price of lumber climbed exceedingly high, with a charge of $100 per 1000 feet to haul it from Campbell's mill (near present-day Saratoga) to San Jose.

News of the discovery of gold reached the American people when President Polk informed them in his annual message on December 5, 1848. In early 1849, as soon as travel was possible to California after the spring thaw, there was a universal rush of Americans to the territory, followed by thousands from all corners of the world.

Not all who came to California first experimented with mining. Very quickly it became obvious that providing provisions to those engaged in mining was highly profitable (by mid-1849 flour had climbed to $50/barrel), and there was more "gold" to be gathered in agricultural rather than mining pursuits. In increasing numbers the newcomers settled on the land to make their fortunes, in large part paying little heed to the actual ownership of the land they saw as vacant and unused. With the influx of people greater than the outflow, the area around Santa Clara looked like a half military and half civil settlement with numerous white tents dotting the plains.

By the middle of 1849, the population had become so large and diverse that it was obvious that governing the people in California under the existing conditions of government and laws was impossible. Concurring in the views generally expressed and in anticipation of official Statehood, Governor Riley issued a proclamation in June for a Constitutional Convention to meet in Monterey on September 1, 1849.

Within six weeks, the delegates to the Convention had "framed a state constitution that settled the slavery issue, established the boundary between California and Mexico, adopted the state seal and motto, and provided for state legislative and judicial officers." On November 13, 1849, an election, in which only American citizens could vote, ratified the constitution and elected Peter Burnett as governor. San Jose was selected as the state capitol and there on December 20, 1849, General Riley resigned his gubernatorial office and Governor Burnett was sworn in.