They hired Bernanke for a reason. That reason being they knew this was coming. Read his 2002 speech on deflation it acts as a road map to how he is responding to this crisis.

http://www.federalreserve.gov/boardd...

My understanding of the POG is that it does not respond directly to inflation but rather to the rate of change in inflation. That being said, a deflationary scenario provides the perfect environment for "internal" bouts of inflation. The following quote is taken from the above link.

"Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation."

That is why I think gold will do fine in a deflationary environment.

Cheers