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The History of Coin Grading
In the early days of coin collecting, the grade of a coin was subjective and limited. In today’s coin market, the grade of a coin is as much science as art, and independent third-party grading services guarantee the correct grade for scarce and high-quality coins.
By the mid-1800’s, only a few grading terms were used to describe a coin. The terms ranged from Good to Fine and Uncirculated, as well as Proof. However, one person’s “Uncirculated” could easily have been another’s “Fine.” There were no defined standards for grading a coin, so each dealer and collector chose his own standards.
To complicate matters, a coin’s grade was often stated in relation to its age or rarity. For example, a rare coin in Good condition may have been described as “Very Fine.” In this case, the grade was based on the condition relative to other known coins, not on the condition relative to the day it was struck. As such, the description was of little practical use.
Coin grading discrepancies was a serious problem, so collectors began pressing for uniform standards by the turn of the 20th century. The American Numismatic Association
(ANA) also realized the importance of standardized grading, but other than some additional subjective grades to fill the gaps between the established grades, very little changed… until 1949.
Sheldon Coin Grading Scale
In 1949, Dr. William H. Sheldon created a 70-point grading scale. The grading scale assigns a whole number between 1 and 70, with 70 being a perfect, flawless coin and 1 being a coin in the worst possible condition. The grade of 70 assumes the Mint could strike a perfect coin.
While a 100-point scale might have been more logical and easier to understand, Sheldon developed the 70-point scale because he believed a coin in perfect “70” condition was 70 times more valuable than a coin in the grade of 1.
Although Sheldon’s grading scale was developed specifically for large pennies from 1793-1814, it quickly became the standard for all coins. The Sheldon system was the first step in solving the puzzle of grading. The original logic has long since disappeared due to the modern emphasis – and therefore greater value – placed on higher quality coins, but every collector still accepts the 70-point scale.
Official ANA Grading Standards for United States Coins (1977)
The next significant step in coin grading took place in 1977 with the publication of The Official ANA Grading Standards for United States Coins. Written by Abe Kosoff, the book was the first attempt to set standards for the grading of all coins. For the first time, numerical grades were clearly defined – complete with illustrations. Kosoff used the Sheldon scale of 1-70, but he also created descriptions for each of the major numerical grades. For example, a coin with the grade of 60 was defined as Mint State (shortened to MS60) and a coin with a grade of 45 was defined as Choice Extremely Fine (EF45).
The ANA system became the standard among coin collectors and dealers. Over the years, the system was modified and refined, and better photographs and other illustrations made it clear what the differences were between the grades.
The basic grades in the ANA system are as follows. For standard coins struck for circulation:
• Perfect Uncirculated (MS70)
• Gem Uncirculated (MS65)
• Choice Uncirculated (MS63)
• Uncirculated (MS60)
• Choice About Uncirculated (AU55)
• About Uncirculated (AU50)
• Choice Extremely Fine (EF45)
• Extremely Fine (EF40)
• Choice Very Fine (VF30)
• Very Fine (VF20)
• Fine (F12)
• Very Good (VG8)
• Good (G4)
• About Good (AG3)
For Proof coins made for collectors:
• Perfect Proof (PF70)
• Gem Proof (PF65)
• Choice Proof (PF63)
• Proof (PF60)
The terms “Mint State” and “Uncirculated” or “Brilliant Uncirculated” are interchangeable, so all coins with an “MS” grade are in Uncirculated condition. The highest grade possible for any coin is 70, while the lowest acceptable grade for most coins is 3. Intermediate Mint State and Proof grades between 60 to 70 are also possible, such as MS64 or PF69.
Even with the creation of a standard grading system that collectors and dealers agreed upon, problems still arose concerning different interpretations of specific grades. To counter any perceived bias in coin grading, private companies were established starting in the 1970’s to offer expert opinions about a coin’s grade.
Independent Third-Party Coin Grading Services
Independent third-party coin grading services proved to be another major step in the ongoing effort to standardize grading. The most important early company was the ANA Certification Service, or ANACS. ANACS was established in 1972 to examine coins and determine whether they were genuine, but the grading service started in 1979.
In addition to ANACS, other coin grading services were established. The most prominent were the Professional Coin Grading Service (PCGS), which started in 1986, and the Numismatic Guaranty Corporation (NGC), which was founded in 1987.
The grading services revolutionized coin collecting, especially after PCGS started the practice of encapsulating graded coins. After agreeing on the grade of a coin submitted for grading, the coin was encapsulated in a clear plastic holder – known as a “slab” among collectors – with a label identifying the coin and the grade.
The holder allows dealers and collectors to trade coins sight unseen, safe in the knowledge that the coin is accurately and professionally graded. As long as the coin remains in the holder, the grade is guaranteed. As a result of several top-quality coin grading companies competing for business, the pressure to grade coins accurately increased. Some collectors and dealers prefer certain grading services over others, believing their grading is more accurate and more likely to be upheld in the market.
A coin that has been independently certified and graded is presumed to be accurately graded, regardless of the company that graded it. The grading is done by coin experts who are unaware of the coin’s owner or whether the coin will be kept in a collection or sold. The coin grading company’s reputation is also at stake with every coin, so there is incentive to get the grading right.
Despite the standardized grading that has evolved due to third-party companies, there still exists some debate about the difference between grades such as MS68 and MS69. However, most dealers and collectors trust the grading companies and their experts to discern the differences that separate the grades.
Today, independent third-party coin grading has become the standard by which a coin’s value is based. Its importance can not be understated.
Almost every rare or scarce coin, as well as almost every coin in high Mint State and Proof grades, must be certified and graded by a third-party service before they enter the market. In fact, any such coin that is not graded and “slabbed” is immediately suspect. An individual dealer’s or collector’s opinion is no longer valid, regardless of his or her reputation.
Value of a Coin’s Grade
One of the reasons that independent third-party coin grading is so important is that the difference between the value of a coin in, say, MS64 versus MS65 condition can be tens or even hundreds of thousands of dollars.
For example, the value of a rare 1895-O Morgan Silver Dollar explodes as the grade increases:
• MS60 – $18,000
• MS63 – $55,000
• MS64 – $110,000
• MS65 – $225,000
• MS67 graded by PCGS – $575,000 (2005 auction)
Based on numbers such as these, a buyer has to know beyond a reasonable doubt that the coin is accurately graded.
Another dramatic example is the 1907 Ultra High Relief, Lettered Edge $20 Saint-Gaudens gold coin:
• PF67 graded by PCGS – $1,210,000 (1999 auction)
• PF68 graded by PCGS – $1,840,000 (2007 auction)
• PF69 graded by PCGS – $2,990,000 (2005 auction)
With a difference of $1.15 million in value between PF68 and PF69, it is essential for both the buyer and the seller to know that the coin is correctly graded.
As well as determining a coin’s grade, the independent third-party coin grading companies certify that coins are genuine. This is mandatory for any rare coin. In 2010, one of the five known 1913 Liberty Head Nickels was sold at auction for $3,737,500. The coin was certified and graded as PF64 by NGC. Without certification from experts such as NGC, the coin could be essentially worthless.
Due to the increasing importance of independent third-party grading, always insist on third-party grading when purchasing scarce or rare coins, or coins in grades higher than MS60 or PF65. Third-party grading is also advisable when purchasing classic coins in higher-than-average grades.