Why Coins Are Graded?
Coin grading describes the condition of your coin and is an important aspect of coin collecting. The ability to accurately "grade" your coins is an important skill to develop. Unfortunately, coin grading is not a scientific process that can be applied by different people and receive identical results. In fact, it is very subjective and goes back to the old adage, "Beauty is in the eye of the beholder." What one coin collector thinks is a beautiful coin may appear to another coin dealer as an unpleasant looking coin; or vice versa.
Coin grading tries to move beyond the subjectiveness of beauty by coin collectors and coin dealers agreeing upon definitions of coin grading adjectives that describe the preservation level of a particular coin. In other words, we may describe a coin as "poor" if it is so worn that it is barely recognizable. On the other hand, we may describe a coin as "extremely fine" if it has very little wear on it and almost all of its design details are still intact.
The first person who tried to establish a consistent set of coin grading definitions was Dr. William Sheldon in 1949. He established a 70 point coin grading scale based upon the value of a particular coin and date combination. Regrettably, the idea didn't take off and people started using adjectives to describe the condition of a particular coin. At this point, much confusion reigned because what one person would term as "good" another person may view as "not so good."
It is only human nature that people prefer things that are better looking and of better quality. This is ever so true with coin collectors. We prefer a coin that is in excellent condition over one that is so worn it is barely recognizable. Therefore, coins that are in a better state of preservation and exhibit a lower level of wear-and-tear, are more desirable than well-worn coins.
Since the number of coins minted in a particular year does not change (provided that the mint does not go back and make any coins from a previous year) the supply is fixed at an initial point. As coin circulate, they become worn and less desirable by coin collectors. Applying the laws of supply and demand, will result in better quality coins being worth more money.
Population by Grade
Once the coin collecting community agreed upon an established set of descriptions to describe a particular level of preservation for coin, coin collectors and dealers could compile information as to how many coins in a particular grade remain available to collectors. This is called population reporting and allows researchers and dealers to determine approximate value of coins in particular coin grades.
Two Basic Categories of Coin Grading
For any particular series of coins, coin grading is divided into two major categories: circulated and uncirculated (or mint state). The coin grade of a circulated coin is mostly based upon its state of preservation. Another words, the more wear that a coin has received, the less desirable it will be to coin collectors. This then provides an easy way to establish a coin's value.
Although we would like to believe that all uncirculated coins would hold the same value, we know this is not true. Even uncirculated coins will exhibit different characteristics that make them more desirable to collectors. Some of the factors that affect the grade given to a coin include the following:
- Planchet: During the manufacturing process, there are many opportunities for a planchet to have quality issues or receive some sort of damage while it is being handled and transported throughout the mint. Planchets that are undamaged and fall within the specifications for that particular coin are more desirable by coin collectors.
- Die: As a coin die is used to strike coins, it will wear and deteriorate like any other part that is used in a manufacturing process. The first coin struck off of a fresh set of dies will be of the highest quality.
- Strike: During the minting process the workers at the mint adjust the coining press to achieve an optimal strike. Too much pressure may bring up the finer details of the coin, but will cause the coin die to wear out sooner. Too little pressure and the finer details of the coins will not be present but the die will last longer.
Learn More About Coin Grading: Coin Grading 102 - Standards for Grading Circulated Coins