Coin grading

In coin collecting coin grading is the process of determining the grade or condition of a coin, one of the key factors in determining its value as a collector's item.

The grading of a coin includes the analysis of several criteria, the most important being the quality, the rarity, the interest factor, and the liquidity factor.

Overview

Coin grading has evolved over the years to a system of finer and finer grade distinctions. Originally, there were only two grades, new and used.

This evolved for a time to the letter grading system beginning with the lowest grade – Basal State (also Poor (PO)), then continuing Fair (Fr), About or Almost Good (AG), Good (G), Very Good (VG), Fine (F), Very Fine (VF), Extra Fine (EF or XF), Almost or About Uncirculated (AU), Uncirculated (Unc) and up to Brilliant Uncirculated (BU). Gem Uncirculated was roughly equivalent in usage to BU at that time.

The British grading system is similar, except that 'Good' and 'Very Good' are 'Poor' and 'Fair' respectively. The word 'Good' used to describe a coin under the British grading system is usually an indication that it is at the higher end of its grading classification, e.g. a 'Good Fine' coin will be in a better condition than a coin that is merely 'Fine'.

William H. Sheldon in his book Penny Whimsy is credited with coming up with the Sheldon Scale in the 1950s, a numeric system going from 1-70. It was intended to be a reflection of the relative value of a 1794 Large Cent, which was then worth $1 in Basal State and $70 in Uncirculated MS-70.

This numerical system was used primarily within the community of large copper coin collectors (a very specialized part of numismatics that often has its own ideas about quality and grading compared to the rest of the coin collecting community) until the mid 1980s.

Now it is widely known that the numbers are a scale: 70 being a perfect coin, and 1 appearing as little more than a piece of oxidized, scarred, and bent copper.

Components of coin grading

A "grade" is a shorthand devised by numismatists to indicate the appearance of a coin. There are generally five main components which determine a coin's grade: strike, surface preservation, luster, coloration and eye appeal.

Quality grading

Early grading systems

The quality of all coins is not equal and collectors felt the necessity of defining the quality of the coins in order to assess their value. Rims, nicks, polishing, scratches and other forms of wear are considered factors in grading a coin. Also, if coins have been in some form of jewelry also affects the grading.

In the early years of coin collecting, three general terms were used to grade coins:

• good - when circulation had worn the surface of the coin, but details were still visible.
• fine - when features were less worn and a bit of mint luster showed on the surface.
• uncirculated - when the features of the coin were sharp and the luster approaching the state of the coin at the mint. .

The Sheldon grading system

As the collector market for coins grew rapidly in the late 19th century and early 20th century, it became apparent that a more precise grading standard was needed. Some coins were simply more fine than others, and some uncirculated coins showed more luster and far fewer marks than others. Terms like "gem uncirculated" and "very fine" began to see use, as more precise grading descriptions allowed for more precise pricing for the booming collector market. In 1948, a well-known numismatist by the name of Dr. William Herbert Sheldon attempted to standardize coin grading by proposing what is now known as the Sheldon Scale.

Sheldon's scale, included in his famous work "Penny Whimsy", was originally devised specifically for United States large cents, but it is now applied to all series. The scale runs from 0 to 70, where 0 means that you can pretty much tell that it was once a coin while 70 means that it is perfect.

European grading system

European countries use various different, roughly equivalent, grading systems. The main features of their systems are presented in the following table:

European Grading System

Adjective	Design remaining	United Kingdom	France	Spain	Italy	Germany	Scandinavia	Netherlands	Portugal
Good	10%	G	AB (Assez Beau)	RC	M	GE (Gut erhalten)	2	G (Goed)	REG
Very Good	25%	VG	B (Beau)	BC	B (Bello)	SGE (Sehr gut erhalten)	1-	ZG (Zeer Goed)	MREG
Fine	50%	F	TB (Très Beau)	BC+	MB(Molto Bello)	S (Schön)	1	Fr (Fraai)	BC
Very Fine	75%	VF	TTB (Très Très Beau)	MBC	BB (Bellissimo)	SS (Sehr schön)	1+	ZF (Zeer Fraai)	MBC
Extra Fine	90%	XF	SUP (Superbe)	EBC	SPL (Splendido)	VZ (Vorzüglich)	01	Pr. (Prachtig)	Bela
About Uncirculated	95% + some luster	XF/UNC	No use	No use	No use	UNZ- (Fast unzirkuliert)	01/0	No use	No use
Uncirculated	100% + luster	UNC	SPL (Splendide)	EC	SPL/FDC	UNZ (Unzirkuliert)	0	FDC (Fleur de Coin)	Soberba
Brilliant Uncirculated	100% + full luster	UNC	FDC (Fleur de Coin)	FDC	FDC	STGL (Stempelglanz)	0	FDC	No use

Distinctions

In 1984, Numismatic Certification Institute (NCI), the first privately-owned grading service, was launched by the owners of Heritage Rare Coin Galleries (now Heritage Auction Galleries) of Dallas, Texas. In 1985, Ivy Press published the NCI Grading Guide, later renamed How to Grade U.S. Coins, an instruction manual on grading mint state and proof U.S. coins by James L. Halperin. In 1986, PCGS (Professional Coin Grading Service) was incorporated. PCGS authenticated, graded and encapsulated coins in a protective hard plastic shell. They used a combination of the two older systems putting letters and numbers together so that the grades became BS-1 (or PO-1), FR-2, AG-3, G-4 (Good: coin is heavily worn, even the major detail is not clearly visible), G-6, VG-8, VG-10, F-12 (Fine: fine detail visible but coin is heavily worn), F-15, VF-20, VF-25, VF-30, VF-35, XF-40, XF-45, AU-50 (About Un-circulated), AU-53, AU-55, AU-58, MS-60 (Mint State: completely un-circulated condition), MS-61, MS-62, MS-63, MS-64, MS-65, MS-66, MS-67, MS-68, MS-69 and MS-70 (Mint State: perfect, the highest level on the Sheldon Scale). For mint state and proof coins, PCGS used a slightly stricter interpretation than NCI, but basically employed the same standards outlined in Halperin's book. They also issued limited guarantees for the value of coins they had graded.

The march to finer and finer distinction had taken another huge step. Alongside this scale was a similar one for proof coins PR-01 or PF-01 through PR-70 or PF-70 that was roughly equivalent to the MS scale, except for proof coins. This is important as in some issues distinguishing between mint state (for commerce) and proof coins is very difficult and specialized and the price differences can be large in favor of either MS or PR/PF.

The origin of the idea to make coins easily tradable on an open market came from Wall Street in order to expand beyond the bullion coin market. However, because they had finite mintages, and used technical grading rather than market grading there are physical and practical limits to their system, particularly in relating the grade directly to a value. One thing PCGS did accomplish was largely ridding the marketplace of inferior counterfeit coins. Unfortunately, some better counterfeits have since come into being, further justifying the need for professional authentication in a counterfeit-authentication arms race.

Rarity factor

The value of coins depends on their rarity. There are several scales which have been developed for the definition of the rarity of a particular coin. The most common are the "Sheldon rarity scale" and the "Universal rarity scale" "Rarity Scales". "Rarity System". Retrieved June 3, 2010.

The Sheldon rarity scale

The Sheldon scale has been developed by William Herbert Sheldon in 1958 and consists of a progression of eight levels, in which the population of all coin varieties are to fall. Each level is prefaced with the letter "R", indicating rarity. While being developed for the one cent coins which were he studied, the scale has been used for defining the rarity of all coins.

Sheldon Rarity Scale

Rarity	Description
R1	Common, readily available
R2	Less common - Available at most shows, but in limited quantity
R3	Scarce - somewhat difficult to find, only a few likely at larger shows
R4	Very scarce - may or may not find at larger shows/auctions
R5	Rare - unlikely more than 5 at shows or auctions each year
R6	Very rare - Almost never seen, only one may be offered for sale in a year’s time
R7	Prohibitively rare - one may be offered for sale once every few years
R8	Unique, or nearly so

The Universal rarity scale

The Universal rarity scale (URS) was developed in 1992 by Q. David Bowers.

Universal Rarity Scale

Rarity	Number of known coins
URS 0	None known
URS 1	1, unique
URS 2	2
URS 3	3 or 4
URS 4	5 to 8
URS 5	9 to 16
URS 6	17 to 32
URS 7	33 to 64
URS 8	65 to 125
URS 9	126 to 250
URS 10	251 to 500
URS 11	501 to 1,000
URS 12	1,001 to 2,000
URS 13	2,001 to 4,000
URS 14	4,001 to 8,000
URS 15	8,001 to 16,000
URS 16	16,001 to 32,000
URS 17	32,001 to 65,000
URS 18	65,001 to 125,000
URS 19	125,001 to 250,000
URS 20	250,001 to 500,000

The Scholten scale

Dutch numismatist C. Scholten developed the following rarity scale in 1953 which he applied to the study of coins in the Dutch colonies The Scholten scale includes the following degrees of rarity

Scholten Rarity Scale

Rarity	Number of known coins
C	Common
N	Normal
S	Scarce
R	Rare
RR	Very Rare
RRR	Extremely Rare
RRRR	Of the utmost rarity

Interest factor

The Interest factor is a term used to indicate how much demand a particular coin or variety might have. A variety with a very high interest factor would be in high demand, with several thousands of collectors desiring the variety. A medium interest factor may indicate that the variety is desired by hundreds or a few thousand people, and a low interest factor might indicate that the coin is sought by just a handful of collectors.

As a variety receives more publicity within the numismatic press, the interest factor may rise as demand increases. This may cause the price or value of certain varieties to increase without any change in the estimated quantity available. On the other hand, if a large quantity of a variety surfaces, the value of that variety may decrease as the supply outstrips the demand. As in other segments of the hobby, a combination of supply and demand almost always dictates the price or value of a particular variety.

Liquidity factor

The Liquidity factor is a measurement developed by J. T. Stanton, president of PCI Grading Company to indicate how quickly or how easily a coin or variety should sell at auction, given normal market conditions. Using a scale of 1 to 5, a Liquidity factor of 1 would indicate that the coin would not normally sell very easily or fast, and usually at a discount from suggested values. A Liquidity factor of 5 would be expected to sell right away, and generally command full or inflated suggested values. Hot or highly active market conditions would usually inflate the Liquidity of any coin, with a cold market causing the opposite.

Grading services

Main article: Third Party Grading

As of 2010, there are two prevalent coin grading services: PCGS and NGC. ANACS is considered the third leading service, and is also quite credible, but does not carry the market acceptance or liquidity of the other two. ICG is the fourth largest. There are subtle variations in the grades assigned by each of these major services, and prospective buyers are encouraged to seek professional or expert advice before making any important rare coin purchases.

An interesting contender among previous grading services was Compugrade. In 1990 Henry Merton was awarded United States Patent Number 4,899,392: Method and System for Objectively Grading and Identifying Coins, Feb. 6, 1990. Compugrade’s computers evaluated mint luster, physical damage to the coin and other conditions that detracted from the quality of 'Mint State.' Compugrade also patented a ‘tamper-proof’ slab to hold the coins that they graded. However, a ‘coup’ by members of Compugrade’s board of directors caused Henry Merton to telephone the Editor of Coin World to ask her to publish the letter that he had filed with her. That letter acknowledged assistance from numismatists who had not signed release forms for their contribution of information to the writing of the patent. That letter to the editor ‘wiped out’ Compugrade’s exclusivity by placing the patent in the public domain, which was Merton’s intent.

In the May 26, 2003 edition of Coin World, the hobby newspaper had announced they had contracted investigators to conduct a year-long, comparative study of PCGS, ANACS, NGC, and ICG, along with several other grading services, each known as a TPG or Third Party Grader. In their investigation, Coin World sent several of the same coins to each grading service over the course of a year, each coin being graded by all Third Party Graders sent to. The findings were; "In no case did the grading services agree on the grade of any given coin, and in some cases the difference in grading was as much as seven points off". By way of example, a finding published by Coin World involved one case where ACCGS had graded a coin as "cleaned", which lowers the coin value. Additionally the coin had been graded several grades lower than PCGS while PCGS had not noted the same coin was "in fact, cleaned". It is standard in U.S. numismatics to grade coins on a point-scale from 1 (poor) to 70 (perfect), and to note if a coin has been cleaned or poorly mishandled, or in some cases to reject it for encapsulation.

On January 5, 2007, the Professional Numismatists Guild (PNG) published a more recent report about grading services and standards. The survey indicated the professional opinions of numismatists who buy and sell coins. No grading service was listed as "outstanding". PCGS and NGC were ranked as "superior". ANACS and ICG were ranked as "good".

In September 2004, members of the American Numismatic Association (ANA) reported seeing counterfeit NGC PCGS holders (also known as "slabs") at the Long Beach Coin Show. Members of the Beverly Hills Coin Club (BHCC) an affiliate club-member of the ANA, had reported counterfeit coin slabs as early as December 3, 1998. As a direct result, BHCC partnered with ACCGS, manned by unpaid club volunteers, as a pre-certification service for coins and to "guarantee the authenticity of slabs or Third Party Grader holders". More counterfeit PCGS and NGC holders were reported on eBay in 2005 and later years, but NGC did not address the problem until 2008, after high-quality counterfeit holders had been seen and purchased on eBay. Numismatic Guaranty Corporation (NGC) published the following acknowledgment on January 7, 2008:

"NGC has identified and confirmed that (counterfeit replicas) of its holder has been produced.......The holder has been seen housing counterfeit dollar or foreign crown size coins. While the enclosed coins are also counterfeit, the label information matches the coin type enclosed. The label information is copied from actual NGC certification labels, and the certification information therefore will match the NGC database. Most frequently, Trade Dollars and Bust Dollars are found, although Flowing Hair Dollars and foreign coins have also been seen. A range of grades is also represented."

NGC and PCGS counterfeit holders have been reported in eBay forums and more may be reported by other firms and individuals. The PCGS website notes that they "anticipate that authentic coins will eventually be placed into counterfeit holders". Third party graders are taking measures to resist counterfeiting, however, counterfeit holders may multiply and improve over time. Numismatic Guaranty Corporation and PCGS offer no reimbursement liability for the prices paid for coins in their counterfeit holders. Both firms have online links to verify the holder numbers. However, many buyers may not be computer users or may be unaware of such links. Caution is advised when purchasing coins in PCGS and Numismatic Guaranty Corporation holders as the seller can disclaim liability due to the "third party" nature of the counterfeit holder. Additionally, it may be too late to request refunds from eBay sellers before holders can be verified as counterfeits. Many coins are posted on eBay and through other venues "as is" and therefore with no return privileges.

Complexity

It is difficult to imagine that there will be yet finer distinctions in grading in the future, yet it's already happening. Series-specific strike distinctions such as FSB (Fully Split Bands) for Mercury and Roosevelt Dimes, FBL (Full Bell Lines) for Franklin Half Dollars, FH (Full Head) for Standing Liberty Quarters, 5 and 6 step Jefferson Nickels and so forth are creating condition rarities out of coins formerly thought of as common.

In addition, both PCGS and NGC introduced "Plus" grading in 2010, whereby coins graded between XF45 and MS68 can receive a '+' (for example, MS63+) if they are at the high end of their assigned grade.

The depth of mirrors on proof coinage has led to terms of distinction such as Cameo, Deep Cameo, Ultra Cameo and so forth. Also, uncirculated coins are sometimes deemed Proof-like and Deep Mirror Proof-like.

With all of these factors to consider, and the distinction between grades being so fine in many cases, it becomes more and more difficult for the average collector to keep up. The general public is even less likely to understand this explosion of grades and the subsequent valuations. Nevertheless, there are many good books and web sites that can assist in determining the approximate grade of coins.

See also

• Mint state
• Coin collecting
• Numismatics
• Exonumia
• Troy weight (The system used with coins and precious metals. One troy ounce (ozt) is exactly 31.1034768 grams, about 10 percent more than the avoirdupois ounce, which is exactly 28.349523125 g.)

External links

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• PCGS
• NGC
• ANACS
• ICG
• CGS-UK