Market demands change grade standards

Apparently, statements and examples I made in a past column were confusing to some readers. Unfortunately, restraints of space impose a limit to the amount of information I can provide.

If a reader is confused by my words, then on one hand I have failed. On the other hand, I believe any column that provokes a discussion of ideas is a good one.

Let’s examine again how many AU coins came to be graded as Mint State and hopefully clarify some points I tried to make.

First, you must grade a coin as you see it. You cannot take into account the writing on the 2x2 holder or flip, the story about where the coin came from, how it was preserved, who owns the coin, or for that matter even the grade on a slab. The word “Uncirculated” implies that a coin has no trace of circulation wear because it was never used.

Now, if I take a gold coin from a pile of debris, junk and other coins and find that it is in perfect Mint State condition with no imperfections, from that moment on, that coin, which obviously was released by the Mint with the intent that it circulate and should be all beat up because of the way it was stored, rates a grade of “Gem Uncirculated” simply because it meets all the criteria for that grade.

Unfortunately, after a week of mishandling by several people, that same coin showed signs of circulation – hairlines, and loss of luster on the high points. In summary, for over a hundred years after it was minted, when I first saw it, that gold coin was as fresh as the day it dropped from the coining press; yet in one week of careless handling it became a circulated coin rating an AU grade.

As to grading standards changing over the years, I fought against it by the way I graded and by the way I taught seminars. I believed a coin should be given the same grade every time it was graded as long as its condition remained constant. That is a fixed “technical” standard with less confusion – an ideal that should be approached as much as possible – no gradeflation or outside influences.

After it is graded, let the market put a price on each coin as it does today. Unfortunately, this is a failed idea because if a coin’s perceived value exceeds its actual “technical” grade, the “market” raises its grade commensurate with its worth. Therefore, similar coins with an identical amount of actual wear bring different prices and have different grades.

After my original column was published, Bill Fivaz wrote to say he enjoyed reading it and enclosed a copy of a column he wrote 23 years ago in 1986. Bill had the future of the coin market figured out. I quote: “Someday, someone is going to see the light and realize that many, if not most, AU-58s, and even some AU-55s, should command a price in excess of MS-60 listings!” Today they do. I think it’s just too bad we can’t call them what they are (AU); yet price them what they are worth.

As a professional grader, I’ll never forget being told by a famous numismatist (now in the ANA Hall of Fame) that I was jousting against windmills by advocating a fixed grading standard. Why send coins to grading service A if you can get a higher grade for the same coin at service B? You need only look at noteworthy coins like the 1870-S half dime to see evidence of gradeflation or the 1804 proof set to see the evidence of third-party grading service shopping.

As I wrote previously, grading standards have changed and continue to evolve. Nevertheless, my personal standards have not. It is my money. I still want truly uncirculated coins, with full mint luster and no trace of friction wear – the “old standard.” This standard is out of line with the marketplace. Consequently, many coins slabbed as Mint State by major grading services do not meet my personal standard for that grade.

This is confirmed by a sentence I quoted from the introduction of Grading Coins by Photographs: “Today, such coins that used to be graded as About Uncirculated (AU) are now often graded as MS-60, MS-61 and MS-62.” Just a few lines down is this sentence: “Where the heck can I find those wear-free coins that Dave Bowers defines…” Trust me when I tell you that truly uncirculated coins by my personal standards are still out there. It just takes some looking to find them, especially for some coin types.

As a professional coin grader, I must wear another hat and toss my personal standards out the window. When grading, I must be fair to each coin while at the same time adhering to the grading standards set by the grading service I work for. That is not a cop out on my part. It is reality. That’s also one reason why multiple graders examine each coin and the grades are checked by a finalizer. If many coins with rub on their high spots are bought, sold and slabbed at some level of uncirculated (MS-60 to MS-70), the marketplace dictates it. Standards change as the old-timers die off. Another generation of numismatists takes over with new ideas of how things should be. Change becomes inevitable.

Reputable third-party grading services are a boon to our hobby. In the 1960s and early 1970s confusion reigned in the marketplace. I was lucky to have a knowledgeable, conservative grader as a dealer when I started buying coins. At Joe’s shop, uncirculated coins had full mint luster. Meanwhile, one dealer across town used Ipana toothpaste on every coin in his place, including the copper. Lucky, I didn’t learn from him.

At coin shows back then, any $2.50 or $5 Indian from polished extremely fine to fully lustrous uncirculated could be found in 2x2 holders labeled as uncirculated. This was also true for other coin series. That is why a fully frosted, blazing white, unmarked Barber half dollar was so special to me. I had never seen one in that condition at a coin show before because the Barber coins being sold as “uncirculated were mostly a shade of gray with cabinet friction.

The advent of grading services brought gem coins out of collections and into the light and eventually onto the bourse. Their owners sought to preserve them so that improper storage or mishandling could not ruin them for future generations. Today, true gems like the Barber half I wrote about are commonly encapsulated by major grading services. Nevertheless, don’t confuse rare coins with rare condition. A common date uncirculated Barber half may not be considered a rare coin, that is, until it is graded over MS-66.

The point of my previous column was that grading standards have changed over time and they will continue to change. I believe the demand for high-grade coins is a significant factor in “gradeflation.” Would you rather have a coin grading fine or very fine?

Take a look at the ANA Grading Standards for United States Coins and compare it with the newest published standards. In many cases, the photographs of fine coins now match the very fine photos in the recent books. Would you rather have an AU coin or one called MS-61 or MS-62? Collectors want uncirculated coins so many AUs are graded MS. It is market acceptable.

Finally, the grading services grade the coins as they see them. Since anyone can point out specific examples of overgraded or undergraded coins from every grading service, the Certified Acceptance Corp. sticker found on some slabs indicates that the coin inside is correctly graded.

As I see it, the main benefit of CAC is to boost the price of the coin while providing one more layer of protection to the uneducated consumer. I have enough confidence in my grading skills to know that any slab I purchase will rate a CAC label. If other collectors took the time to educate themselves, there would be no need for these stickers. I don’t expect that to happen.
However, I will bet that within another generation, gradeflation, a new 0-100 scale, or decimal grading will make much of our present grading system obsolete. Let’s see if that prediction turns out as prophetic as Bill’s was 23 years ago.