Understanding Coin Grading and Coin Values

When it comes to investing in old gold coins it is important to understand where their value is derived from.  There are two important factors that determine any old coin’s value: rarity and quality.  It is where these two factors intersect that is crucial.  Rarity is pretty easy to understand, but how quality is determined is a little harder to grasp, therefore we need to understand the grading process.

The grading of coins has become more refined over the years where coins are given finer grade distinctions then what they have in the past. Years ago coins were given a grade of either new or used.

A letter grading system of Basal State emerged, where each letter designation represented a quality range: (Poor (PO)), Fair (Fr), Almost Good (AG), Good (G), Very Good (VG), Fine (F), Very Fine (VF), Extra Fine (EF or XF), Almost Uncirculated (AU), Uncirculated (Unc) and Brilliant or Beautiful Uncirculated (BU). Gem Uncirculated was almost equal in usage to BU during that time.

In the 1950’s William Sheldon created the Sheldon Scale which refined the grading process further and is how coins are graded today. The scale is based on a numeric system that goes from 1-70, 1 being the worst condition and 70 being flawless. When the Sheldon Scale was first utilized it was used mainly in the community of large copper collectors. It wasn’t until the mid-1980s that the Sheldon Scale became a larger part of the numismatic world.

PCGS (Professional Coin Grading Service) was established in 1986. PCGS authenticates, grades, and encapsulates coins in a protective hard casing. They decided to use both systems to grade coins including both numbers and letters. The grading system looks like this BS-1 (or PO-1), FR-2, AG-3, G-4, G-6, VG-8, VG-10, F-12, F-15, VF-20, VF-25, VF-30, VF-35, XF-40, XF-45, AU-50, AU-53, AU-55, AU-58, MS-60, MS-61, MS-62, MS-63, MS-64, MS-65, MS-66, MS-67, MS-68, MS-69 and MS-70.

This was a big step towards finer distinction in the coin grading process. There was also another scale but for proof coins that went from PR-01 to PR-70, it is very similar to the Sheldon scale only it is specific to proof coins. These scales are very important because they help make a distinction between Mint State coins and Proof coins and also determine the quality of a coin to a very specific category.

The purpose of creating these grading scales was to help make it easier to trade coins on the open market. Today anyone can buy coins that have been graded by PCGS or NGC and feel confident.  Both grading companies guarantee each coin for its authenticity as well as its quality.  This revolutionized the coin industry because you no longer needed to be a coin expert to successfully invest in old coins.

About Eric Griffin

Eric Griffin is the President and Co-Founder of www.GoldAndSilverOnline.com. Eric has been around the precious metals business since 1995 when his father started a leading nationwide precious metals dealer. While getting a finance degree from Arizona State University he helped his father with operations but decided to go into banking and finance when he graduated in 2002. He soon found his way back to the precious metals industry, and has written commentary, managed precious metals websites and managed clients portfolios for many years before opening GASO. Eric has a strong grasp on economics as well as a deep understanding of the precious metals markets. If you have any comments or questions don’t hesitate to respond to any of his blog post.

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