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Coins are classified by their state of preservation or condition.
This is called grading. The value of the coin is entirely
dependent on its grade. Unfortunately, the techniques used
in grading rare coins are not very scientific, nor is it consistent.
There is no subject more controversial subject than grading.
While the debate dates back to the 1890's, it has been the
last fifteen years that the problem has become acute.
The real problem stems from the high price differentials
that exist between various grades. The premium for quality
is greater today than ever. The highest grades, the so called
"investment quality," have price differentials that
can be tremendous. For example, in the December, 1986 issue
of The Coin Dealer Newsletter, a Mint State (MS) 1880-S silver
dollar graded at level 60 (or "MS-60") went for
$39; grade MS-63, $80; MS-64, $225; and MS-65, an astounding
$500. As you can see, the price of the choice uncirculated
MS-65 coin sold for more than 12 times the MS-60, even though
both are uncirculated.
Most of the debate stems from whether or not grading coins
is an art or a science. To most collectors, it is a bit of
both. With circulated coins, the grading of coins is a science.
As a coin becomes worn from use, details of the design become
obliterated. Precise standards have been agreed upon for the
purpose of grading circulated coins. These grades define the
amount of the design that must remain visible to meet that
grade. It is from this highly regulated point of view that
grading circulated coins has become a scientific observation.
The grading of uncirculated coins is far more subjective.
Since an uncirculated coin shows no wear and all the details
which were originally struck are visible, the grading question
becomes one of judging visual impact and general attractiveness.
A subjective element is introduced and process of grading
becomes an art. As they say, "beauty in the eye of the
beholder."
Take for example the fact that all coins, even when new,
are not of equal quality. The quality of the blank, or planchet,
the age and state of the die and the condition of the press
all effect the appearance of the coin at the time it is minted.
Furthermore, a great deal can happen to a coin after its minting
without actually entering circulation. Handling at the mint
and subsequent storage throughout the years all plays a part
in its appearance today.
While guidelines exist for determining the degree of luster,
strike, color and marks effecting grade, the final judgement
is subject to individual preferences. The number of possible
combinations is infinite and each buyer inserts his or her
own criteria in the process. It's no small wonder that experts
often disagree about the grade of individual uncirculated
coins.
But, does this mean that buying uncirculated coins is a random
and unstructured process? No, but be wary of any claim that
a coin has been graded by a universally accepted or "official"
grading process. In most cases, the coin you buy has been
assigned a grade that, in the opinion of the seller, best
describes the coin.
To illustrate, if a group of 70 uncirculated silver dollars
were given to a knowledgeable numismatist he would sort them
into any number of stacks of ascending quality. It is possible
that you could wind up with a line of 70 coins, ranking them
from best to worst, in the opinion of the numismatist. In
this case, each coin would probably be worth slightly more
than the coin next to it. In reality, this is how coins are
traded among the experts.
Unfortunately, this structure does not lend itself easily
to an organized trading system to base an industry such as
the coin market. Efforts have been made to provide some type
of mass communication so that a coin could be offered sight
unseen to a prospective purchaser. Some experienced dealers,
who had the opportunity to examine thousands of coins, began
to formulate their own unique mental image of a superior,
average, or inferior specimen.
Subsequently, adjectives were placed before the uncirculated
grade to indicate its rank relative to others known. These
included choice, gem, brilliant, select and a host of others.
Around the mid-1970s, many collectors adopted a scale created
by Dr. William Sheldon. The Sheldon numerical system, based
upon a scale of 1 to 70, set aside certain groups to describe
the condition of a coin. The numbers 60 through 70 were set
aside for uncirculated or mint state coins. The intermediate
numbers, 61 through 69, are loosely defined plateaus where
coins of a similar general quality may be grouped.
However, the illusion of precision stemming from the numerical
system has created some confusion. The valuation/grading of
a specific coin by a numerical assignment often remains a
subjective judgment open to interpretation.
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