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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.

 

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