April 2010

PCGS AND NGC INTRODUCE NEW GRADING SERVICES

In March, Professional Coin Grading Service (PCGS) announced its new "Secure Plus" service. Two important aspects of this service, which is optional for most coins submitted for grading, are the use of digital technology to capture and store a "fingerprint" of each coin and a plus notation to identify coins PCGS considers to be in the top 10-15% for the given grade, e.g. MS65+. PCGS claims that Secure Plus will lead to more precise and consistent grading, improved detection of altered coins, less chance of "gradeflation" (whereby a coin receives a higher grade after being resubmitted), more likely recovery if a Secure Plus coin is lost or stolen, and increased value of high end coins within each grade.

Numismatic Guaranty Corporation (NGC) has announced that within about 60 days it will also introduce a service that adds a "plus" designation when it considers a coin to approach the next higher grade.

It will likely take some time for the impact these new services have on the coin market to become apparent.

GRADING UNCIRCULATED COINS

Grading circulated coins (an overview of which was part of our previous issue) is primarily an evaluation of the amount of wear. Grading coins with no wear takes into account luster, strike, contact marks and overall eye appeal. These factors are generally summarized by a single "mint state" grade, which under the grading system most commonly used in the U.S. will be between MS60 and MS70. Higher numbers indicate higher quality coins.

During the minting process, metal is forced outward under the high pressure of the coining press. Light reflecting off the "flow lines" gives an uncirculated coin its original mint luster. Brilliant cartwheel luster that rotates around the coin's surface as it's moved under a light source is more desirable than a subdued, broad reflection. A coin with unremarkable luster will grade toward the lower end of the MS60 to MS70 scale. One with outstanding luster may grade in the middle to upper part of the scale, depending on strike, contact marks, etc.

Because most coins are mass produced for the needs of commerce, they make contact with machinery and each other while being counted, bagged and transported. Contact marks (also called bag marks) inevitably result. The quantity, size and location of these marks are considered in grading uncirculated coins. Coins with numerous, large marks grade toward the lower end of the MS60 to MS70 scale. As mint state grades go up, fewer and smaller marks, particularly in the prime focal areas, are allowed.

Strike refers to how well the design details have been transferred from the dies to the coin. Weakly struck coins are generally not graded higher than MS63. Coins graded MS65 or higher must be fully struck or very nearly so. Looser standards may be applied for coin designs that were commonly weakly struck.

Eye appeal is an overall assessment of the quality of a coin that includes luster, strike and marks. It also takes into account other factors, such as the presence of any hairline scratches and whether any toning on the surface is considered to make it more or less attractive. Bands of natural toning that transition from one color to another ("rainbow toning") may be a big plus. Dark, splotchy toning may be a negative. Because it encompasses everything that affects appearance, eye appeal is the most important aspect of grading an uncirculated coin.

In summary, a coin assigned the lowest mint state grade, MS60, is likely to have poor luster, lots of prominent contact marks, a weak strike, hairline scratches, unappealing toning, or some combination thereof. The next two grades are for lower quality but somewhat better uncirculated coins, e.g. a Morgan dollar with strong luster but many contact marks may be graded MS62. Coins graded MS63 and MS64 are often lustrous but have too many marks and/or are too weakly struck to be graded higher (or they may be well struck coins with few marks but have below average luster). Even though there are five higher grades, MS65 is sometimes referred to as "Gem BU" (BU means brilliant uncirculated). These coins have excellent luster, full strikes, no hairlines and just a few, small, inconspicuous marks. To earn a grade higher than MS65, a coin must be truly remarkable. Few coins struck for circulation are ever graded higher than MS66. Modern coins struck specifically for collectors, such as non-circulating commemoratives, are often worthy of a grade in the upper part of the scale. The grade MS70 is reserved for coins that are flawless. Some say that no coin is ever quite deserving of that grade, but in recent years the major grading services have assigned it sparingly to some modern collector coins.

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