As far as quality is concerned, numismatic coins always fall into one of two basic conditions. either they are circulated coins--coins exhibiting wear--or they are uncirculated coins. As a general rule, uncirculated coins tend to be more valuable than circulated coins. A numismatist will make the distinction between circulated and uncirculated coins. For the most part, investors and serious collectors concentrate on uncirculated coins.
The word proof denotes a coin that is struck with specially prepared dies and planchets at least twice under higher than normal pressure to ensure that the strike is full and sharp. Many proofs are cameo proofs. To prepare a cameo proof coin, the area of the die that creates the background, or field, of the coin is highly polished, and the area of the die that is used to create the raised image is sandblasted. The result is a coin with a mirror like field and a frosty devise.
Technically a proof coin might have been circulated because they were held by investors and collectors.
Over the years, several methods of coin grading have been adopted by numismatists. One of the most universally accepted scales is the one endorsed by the American Numismatic Association (ANA). For this reason, we will concentrate on this scale in this guide.
The ANA has endorsed a grading scale that divides circulated and uncirculated coins into 24 distinct coin grades. There are 13 circulated grades and 11 uncirculated grades.
The lowest circulated grade is Poor-1. The highest circulated grade is Very Choice About Uncirculated-58.
The lowest uncirculated grades is MS-60,while the highest is MS-70.
The "MS" stands for Mint State. In between, there are grades MS-61,MS-62,MS-63 and so on, all the way up to MS-70--a perfect coin. Each step up the grading scale indicates an improvement in quality.
Because uncirculated coins are in the greatest demand for investing and collecting, we will concentrate on these coins in this booklet. The quality of even uncirculated coins varies widely. For example, each of the regional U.S. mints gave distinct characteristics to the coins it minted. Some coins feature strong, sharp, high strikes, while the images on others is shallower and weaker. The intensity of mint luster on these coins also changes from mint to mint and from year to year.
In addition, most coins bear some scratches. When they were originally minted, they were dumped into bags at the mint. In the bags, the coins would rub against each other, leaving scratches called bag marks.
It is because of the wide disparity in the quality of uncirculated coins that the ANA has established guidelines for grading rare coins.
When a team of trained numismatists from one of the coin certification services inspects a coin, they examine the mint luster, the number, placement and depth of bag marks, the strength or weakness of the strike, and other characteristics of the coin. Then, using their personal interpretations of the ANA's grading criteria, they assign a consensus grade to the coin.
For years, numismatists used only the grades MS-60, MS-65, and MS-70. But several years ago, many identifying finer grading classifications. The difference in value or price between similar coins of different grades became dramatic.
For example, a Saint-Gaudens $20 Double Eagle graded MS-60 might cost $450 while at the same time an MS-63 specimen could cost $700, and an MS-65 coin could cost $1600.
In the belief that many coins would grade better than MS-60 but less than MS-63, the ANA approved the use of the grades MS-61 and MS-62. A similar refining of standards has occurred between many of the other grades, so that today the ANA uses a full 11-point uncirculated grading scale.
The quality of a coin, as measured by its grade, can have a dramatic impact on its future price appreciation. Usually, high-grad coins outperform their lower grade counterparts in terms of investment performance.
It is obvious, then, that the grade of a coin, particularly that of a U.S. issue, has substantial impact on its value.
Independent organizations have been created for the purpose of grading coins. For a fee, coin enthusiasts may submit coins for grading. The coin is then returned to the investor or collector in a tamper-proof plastic container known as a "slab."
Prior to the mid-1980s, coins were generally graded by the dealer, causing serious conflicts of interest in the coin market. Investors fell victim to incidents of grading abuse in which they were unable to resell coins at the point of sale. In response to these abuses and the increased awareness of investment grade rare coins, independent, third party, grading services have been established. The grading standards and practices of these leading services are widely accepted throughout the coin industry. Since their inception, they have graded over 3 million coins. Their services and methods have brought more investors to the rare coin market. Those services neither buy or sell coins, thus there is no conflict of interest arising from such activities and coin grading is done strictly by a consensus approach.
Until about 1990, collectors and investors used mintage figures, numbers showing how many examples of any particular coin were manufactured, to determine the coin's rarity. With the advent of these third-party grading services, there is far more emphasis on the condition of individual coins. Monthly population reports published by these grading services have shown that many coins with relatively high mintages are scarce, even truly rare, in uncirculated or mint state condition. The search for quality has resulted in buyers paying far more for one mint state coin than for another that is only slightly less perfect. The concept of "condition rarity" has come to describe coins that are rare in their particular grade, which is determined on the basis of sharpness of strike, luster, eye appeal, and the absence of cuts, nicks, and scratches.
An industry-wide grading standard was achieved by the establishment of these independent grading services. Another goal of these services is to make the numismatic coin market safer by "guaranteeing" the authenticity and grading of coins they grade. The benefits brought to the coin market by independent grading are numerous. Among the most important are standardized grading, improved liquidity, safe long-term storage, problem-free coins and guaranteed grading and authenticity.