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Coin Values and Why Grading is needed
by D. L. Crane
What is Coin Grading?
Every collector needs to have some skill and
knowledge about how a coin is graded and what
traits are used. If he is considering buying or
selling coins he must have some background in
grading them. Understanding coin grades is
critical to trading in numismatics.
In the world of numismatics, coin grading is a
process by which the grade or condition of a
coin is determined. These factors decide a
coin’s cash value to a collector.
In order to grade a coin, several criteria are
considered. These include: appearance, quality,
rarity, interest and liquidity.
When considering a coin’s appearance, appraisal
looks at a coin’s strike, surface preservation,
luster, coloration and eye appeal. A coin’s eye
appeal is devalued by such flaws or wearing in
rims, nicks, polishing, scratches and other
forms of wear.
Early grading systems considered coins to fit
into one of three categories: A coin was graded
as good when details of the coin were still
visible but the surface had been worn by
circulation. It was deemed to be a fine coin if
wear was minimal and some of the minting luster
still remained. A coin was graded as
uncirculated if features were sharp and minting
luster still remained on the coin’s surface.
As numismatics grew as a hobby, a more
sophisticated grading system was demanded. In
1948, a renowned numismatist, William Sheldon
created a scale in an effort to standardize coin
grading. His scale was at first applied to
American coins but now applies to a wider
coinage. The scale grades coins on a scope of
zero to seventy. Seventy would be a perfect
coin.
A European grading system was roughly equivalent
to the Sheldon grading of North American coins.
For example: a brilliant uncirculated coin would
have 100% of design and luster where a good coin
would have only ten percent of its design
remaining and no luster.
A coin’s rarity determines its value. Rarity
scales have been developed to rate rarity of
specific coins. But, the most common ones are:
"Sheldon rarity scale" and “Universal rarity
scale". The Sheldon rarity scale rates coins
from common, readily available to very rare or
unique.
In considering grading of coins one of the areas
of focus is interest factor. Interest factor is
an indication of how much demand a particular
coin presently has. High interest leads to high
demand and results in higher prices. Which coins
have the highest interest factor will vary from
year to year or even day to day. If a lot of
collectors want the coin and/or the coin is
scarce, its interest factor is higher. If a coin
is featured on numismatic websites or in
numismatic newsletters, its interest factor
rises. This causes prices to rise.
Grading also takes into account the liquidity
factor of coins. A measure of liquidity was
developed by J. Stanton, president of PCI
Grading Company. Liquidity indicates how fast
and/or how easily a coin will sell at a
numismatic auction. Liquidity is rated on a
scale of one to five with coins rated a one
indicating that they will not sell fast or
easily. Those which receive a five on the
liquidity scale would be expected to sell
immediately and generate high prices.
Why is a Grading Scale Needed?
Grading services like PCGS, NGC, ANACS and
Compugrade are necessary in order to standardize
coin values.Prospective buyers need these
services so that they have assurance that the
coins they are buying are a good value according
to a uniform, professional rating service. Often
they are investing huge cash outlays in rare
coins. Grading scales assure them that their
investment is a wise one.
Counterfeit coins can be—and are being—produced
and sold online, through websites and on eBay.
Buyers are warned that when purchasing coins
through a dealer whom they do not know and trust
it is “Buyer beware!” That is why prospective
buyers are encouraged to see the professional
opinion of a reliable, recognized grading
service before making any coin purchases for
their collections. The grading service will rate
the coin and guarantee its authenticity.
The grading scale also gives the prospective
buyer an idea about the fair value of the coin
he is purchasing. The buyer can ascertain
whether the coin dealer’s asking price is a fair
one for that particular coin issue, series, and
grade.
Expert's Guide to Collecting & Investing In Rare
Coins
Red Book Guide to help with U.S. Coins
Coin Collecting for Dummies
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