Deutsche Bank (DB - Get Report) shares dropped to fresh new lows this week following its failure in the Federal Reserve's stress test as well as a question as to whether Germany will bail out the bank. The imminent outcome for Deutsche Bank could be bankruptcy and the world could have to bear the brunt of the fallout from all of the complicated derivatives that are held by the bank.

Deutsche's outstanding derivatives exposure is 20-times the German GDP and fives-times the Eurozone GDP.

Among all of the chaos, Deutsche's head of currencies trading and emerging-markets debt trading, Ahmet Arinc, has left the company, the most recent negative news to impact the banks' financial status. Traders slammed the stock by more than 6% during that trading session, to touch intraday lows of about $12.50 after which the stock recovered marginally to close at $12.97.

Bailout in the Works?

The latest bank that might require a bailout is the Italian lender Banca Monte dei Paschi di Siena, the worlds' oldest bank. The European Central Bank warned that the Italian bank is holding dangerously high levels of bad debt.

Italy wants a bailout for Monte Paschi, but the Germans are opposing any such move. Wolfgang Schaeuble, the German Finance Minister said recently that Italy intends to stick to the banking-union rules, as was conveyed to him by his Italian Counterpart, Pier Carlo Padoan.

However, Italy did not wait before hitting back at Germany and it came from none other than the Italian Prime Minister, Matteo Renzi.

Renzi said that "the difficulties facing Italian banks over their bad loans are miniscule by comparison with the problems some European banks face over their derivatives." He reminded the Germans that there were other European banks which had much bigger problems than Monte Paschi. He was obviously referring to Deutsche Bank.

"If this non-performing loan problem is worth one, the question of 'derivatives' at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred," Renzi said, per Reuters.

More Troubles Ahead for Deutsche?

The bank is likely to lose its' place in the STOXX 50 index, according to analysts at Societe Generale. Deutsche will face renewed selling pressure as the index funds will have to reposition themselves, after the change, which is more than likely to bring about a fresh round of selling. According to a statement by the IMF, Deutsche is now the most dangerous bank in the world. 

How You Should Respond: Gold?

As the bond king, Jeff Gundlach, said this week, "things are shaky and feeling dangerous" and that he's not selling gold. Regarding the European banking crisis, the Gundlach added: "Banks are dying and policymakers don't know what to do. Watch Deutsche Bank shares go to single digits and people will start to panic... you'll see someone say, 'Someone is going to have to do something'."

Gundlach also added that "gold remains the best investment amid fears of instability in the European Union and prolonged global stagnation, as well as concerns over the effectiveness of central bank policies," reports Reuters.

Following Brexit, tensions are running high among the remaining members of the EU, as seen in the spat between Germany and Italy. Due to the earlier hard stance of the Germans, it is likely that any move to bailout Deutsche will face considerable resistance from all of the member nations. If allowed to fail, Deutsche will cause a crisis many times over that of which Lehman Brothers did. 

Americans need to pay attention to this European financial crisis because it could spread here.

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Gold remains the asset to invest in, as I have been advising my subscribers for a long time now. Deutsche Bank is failing and not even the ECB may not able to stop its plunge into oblivion.

This article is commentary by an independent contributor. 

Chris Vermeulen is full-time trader and research analyst for TheGoldAndOilGuy Newsletter.

Chris Vermeulen does not currently have any position in DB at this time.