QE2 is the latest buzzword in the investment community, referring to the second "quantitative easing" program the Fed is likely to dispense. While Peter examined the impact of the Fed's policies on other countries, I want to compare it exclusively to gold. Warning: you may be offended at what you're about to see.

Though QE2 is not yet official, it's largely expected to transpire. Bernanke himself stated on October 15 that "a case could be made for a further easing in US monetary policy." And, according to Reuters, of the twelve policymakers that vote, the average score in favor of a second round of purchases of US debt is "2," with "1" signifying they're most likely to support further easing and "5" that they're likely to oppose. Half the members are rated with a "1," and none are rated with a "5." The odds of QE2 proceeding are thus high.

The next question is: how much "easing" could the Fed do? Bill Gross, at investment management firm PIMCO, believes the Federal Reserve will resume quantitative easing at the rate of $100 billion per month. If the Fed actually bought Treasury bonds at that pace, it would be buying nearly all the new debt being issued by the US Treasury. The Federal Reserve would be financing the government's deficit.

How much effort does it take to create $100 billion per month? It's done electronically, a few strokes on a keyboard. In contrast, what is required to make a gold coin or bar? It takes the best geologists in the world many years and millions of dollars to locate an economic gold deposit; five to ten years and sometimes billions of dollars to develop that deposit; and then dozens of parties, from banks to mints to dealers, assuming myriad risks before a bar or coin gets to you and me.

Let's assume Bill Gross is correct in his projection. How does $100 billion of money printing compare to the amount of gold coming to market each month?

Using 2009 data, the monthly total of new gold supply coming to market averages 9.71 million ounces, or about $13.1 billion (at $1,350/oz gold). That means the Federal Reserve is about to print 663% more in dollars every month than the value of what the entire world can supply in gold from all sources.

Monthly mine production is about 6.39 million ounces, or $8.62 billion, per month. The Fed will be creating 1,060% more in dollars every month than the value of what every gold company in the world can dig up.

Net investment demand (investment minus retail sales) is just over 3 million ounces, or $4.1 billion, per month. And total global coin production amounts to a measly 3 million ounces, or half a billion dollars, per month. The Fed will be creating almost 20,000% more dollars than the value of what all the mints in the world can create in gold coins.

While it remains to be seen how inflationary this will all be, there's no denying it will add to the inflation already baked in the cake. Cause has effect, and just because the government says the Consumer Price Index was only 2.1% through the first half of the year doesn't mean the problem isn't building. It's intensifying, and at some point the dam will give way.

What does the investor do with this information? Make sure you own sufficient protection against the ramifications of promiscuous currency debasement. The more assets you have denominated in gold, the greater your protection. The investable assets you hold in dollars should be viewed as having a serious long-term risk of devaluation.

I'm buying the dips in gold because the government's efforts to reach "an appropriate level of inflation" are destined to work. I think inflation will ultimately go much higher than most are prepared for - or can even imagine. If I'm right, what's your plan of defense?

Jeff Clark is the senior editor of Casey's BIG GOLD advisory from Casey Research. Jeff gained early experience in the metals industry while working on his family's gold claims in California and Arizona. Every month, he informs subscribers of the status quo of the current gold bull market as well as prudent precious metals-related investments, such as large-cap gold stocks, ETFs, and physical gold.