(Yicai) Feb. 10 -- Traditional investing has been anchored to a simple yet deceptive idea for decades: an asset is worth the cash flows it can generate. According to this, gold should have been labeled as a non-viable investment, as it generates no income, no dividends, and no compound growth. Iconic investor Warren Buffett famously described gold as an asset that “just sits there and looks at you,” a stark contrast to productive businesses that generate steady earnings.

Yet this premise is increasingly at odds with the actions of the world’s most cautious institutional buyers: central banks. From the United States, which holds the world’s largest gold reserves and never sells, to China and other nations steadily boosting their holdings, central banks are buying gold at a persistent pace.

Their behavior appears irrational only if one assumes that value must always be expressed through return. This assumption is the problem.

The issue lies in a missing dimension of value: the distinction between ‘return value’ and ‘survival value.’ Most investors are trained to chase return value -- the kind that thrives when systems function, contracts are enforced, and markets stay liquid. This is the value of productive businesses, the cornerstone of traditional value investing. But it is conditional on the continued integrity of institutions, currencies, and settlement systems.

In contrast, gold belongs to survival value, which comes before returns. It does not maximize earnings, it preserves optionality. It sits on balance sheets, not income statements. Its purpose is not to perform in normal times, but to remain credible when assumptions embedded in return models are tested. Without survival, returns become irrelevant. In practice, return value compounds only because survival value is already in place.

This exposes a blind spot in traditional value investing, which prides itself on conservatism, capital preservation, and margins of safety. Yet in practice, it often optimizes returns inside a system whose survival it quietly assumes. Cash flows are discontinued, businesses are stress-tested, but the system itself is left unpriced.

Gold exposes this blind spot. It has no earnings because it does not depend on earnings. It has no yield because it is not meant to compensate for risk -- it is meant to remove certain risks altogether. This is why gold fits poorly into discounted cash-flow models, and why those models, in turn, struggle to explain why gold remains indispensable to sovereign balance sheets.

Gold is often incorrectly grouped with cryptocurrencies as a fiat alternative, but the two serve opposite purposes. Gold is designed for survival within the system, anchored by institutional recognition, while cryptos are designed for survival outside the system, rejecting central authority. This explains why central banks embrace gold but are skeptical about cryptos: gold reinforces institutional continuity, while cryptos challenge it.

More and more value investors, including Ray Dalio and Asian value investors like Cheah Cheng Hye, have allocated meaningful portions of personal wealth to gold not to generate returns but to stabilize portfolios in times of monetary disorder. Their choices reflect a broader interpretation of value investing. Rising sovereign debt, geopolitical fragmentation, and the growing use of financial infrastructure as a policy tool have quietly elevated the importance of balance-sheet resilience.

Gold’s renewed relevance is not just a reaction to inflation or fear. Gold tends to regain attention during transitional periods, moments when the system still functions, but confidence in its permanence begins to weaken. Dismissing gold because it generates no cash flow says more about the limits of traditional frameworks than the asset itself.

In a world where balance sheets matter as much as income statements, gold does not challenge value investing, it challenges what value investors choose not to price. Returns matter, but survival comes first.

The author of this article is Lu Duowei, investor, researcher, and founder of FJ Insights.

Editor: Futura Costaglione