Yesterday's AU May be Today's MS Coin

[DC Dawg]

I found this article by Skip Fazzari at Numismaster.com. He describes what I find is a problem with the coin grading game:

 

While reading the introduction of Grading Coins by Photographs, I came upon these statements: "the interpretation of Uncirculated or Mint State is more liberal than it was 30 or 40 years ago" and, "Today, such coins that used to be graded About Uncirculated (AU) are now often graded as MS-60, MS-61 and MS-62."

 

Fazzari goes on to say that while this was generally known, it was the first time he's seen it in print by someone of Bower's stature.

 

What I found interesting is that Fazzari says:

"I still maintain tight technical standards for uncirculated coins in my personal life; yet this view of coins must be relaxed in a grading service atmosphere."

 

It should be noted that Fazzari now works for ICG and follows that line with:

Since 1986, the major grading services have strived to equate a coin's grade with its value.

 

This almost suggests market manipulation... which he suggests he participates in! Why not grade the coin on its technical merits and not because the the "market" suggests something? Who defines this "market?" What standard is it based on? What happens if the market changes?

 

The more I learn about some of the details of the TPG game, the more I am glad I collect mostly raw coins! I am glad I am divesting some of my graded coins, mostly moderns. I am not sure that the "market" will hold those coins in high regard in the future--maybe even less than they do now.

 

Scott

[michael]

maybe maybe not

 

depending on your choices

 

great article!!

 

and i see you finally figured it out ----- services do not grade coins they price them people do not send in coins to the services for grades they already know the grades. they send in coins to price them

 

this is especially true with moderns.................

 

break the coin out of its holder and it is worth less or should i say priced less

[World Colonial]

I can agree with this statement but I have a different explanation for it. I do not see it as "market manipulation" because it assumes that the market participants are all dupes which I do not believe is true. (I believe it to be true of most participants in most financial markets, but not neccesarily with coins. I will admit though that with certified coins, the "dupes" could be "investors" who really do not care as long they can sell the coin later for more money.)

 

I attribute it to bullish psychology. I have no evidence of this but its the best explanation that comes to mind. The same kind of psychology works in other markets but in ways that apply to each one specifically.

 

When prices are rising, its easier, at least for those who are buying with financial considerations in mind, to overlook a coin's faults if they can sell it easily. But in market downturns when these types of buyer's are less active or disappear, its reasonable that buyer's would be more cautious and skeptical. And possibly, its also more likely that some other "market event" could come into play that would also increase caution. In the current environment, the two that I can see would be concerns over fake slabs or financial problems at one of the TPG. (I have one in mind but will not mention who it is.)

 

Given the opinions that I have expressed for the economy generally in my other posts which I believe will also impact coin prices, I could see something like this raised in the future as a "fundamental" explanation for coin market price action. (It will of course, be a complete RATIONALIZATION but that is how it always works. Its the old saying of perception equaling reality.)

 

As to what this has to do with market grading versus technical grading, it has nothing to do with it directly except in the sense that as market prices have increased, so has gradeflation.

 

I do not see this as an issue as long as the collector or "investor" is a knowledgeable buyer and knows what they are doing. Grading standards are inherently subjective and just like they are applied differently between collectors at any given time, it should not be surprising that they do so over time.

[Oldtrader3]

Before the 3 major grading services (PCGS, NGC, ANACS) began operation there was widespread manipulation and chaos in the coin market. It was not an "orderly market" by any normal market activity equation or any definition. This market condition combined with dealer undermining of bids set up the great dealer bid network breakdown debacle of 1989-90. This price orderly market break down period saw bid prices for many coin series drop 70-80%, characterized by many "market maker" dealers withholding bids out of greed and avarice. Some coin series still have never recovered from this collapse of the coin market.

 

We can not afford to return to those days of no grading standards, buying and selling choas that existed before slabs brought some prices stability to the marketplace. Some people see TPG's as strictly coin pricing mechanisms and they forget the sight unseen bid stability that market grading of coins in slabs has brought to the marketplace. Mainly this benefit is an orderly market with pricing stucture and groundrules where there was no stucture and no stable market before. This is a market with many millions of collectors at all levels who rely on the TPG grading system to run n orderly buy-sell maket. To sell these collectors down the river by reverting to the old greed is good dollar system is unconsionnable at this point.

 

I personally have no desire to go back to the bad old days of caveat emptor and no formally accepted grading system for coins whether you are concerned with gradflation or not. The system may need to be adjusted to reflect more grading accuracy but the system still is the best mechanism to protect your coin investment and run a nationally balanced coin market. Some assume that all collectors and dealers are geentleman and nothing could be further from the truth.

 

To say that gradfklation has destroyed the credibiliity of the TPG grading system is irresponsible and a gross oversimplification of market grading and orderly market progression towards a grading peter priciple scenario of coins seeking their highest grade which is not what the modern slabbed coin market is all about. It has it's problems but is infinately more stabile than the choas that preceded it.

[coinman1794]

I found this article by Skip Fazzari at Numismaster.com. He describes what I find is a problem with the coin grading game:

 

While reading the introduction of Grading Coins by Photographs, I came upon these statements: "the interpretation of Uncirculated or Mint State is more liberal than it was 30 or 40 years ago" and, "Today, such coins that used to be graded About Uncirculated (AU) are now often graded as MS-60, MS-61 and MS-62."

 

Fazzari goes on to say that while this was generally known, it was the first time he's seen it in print by someone of Bower's stature.

 

What I found interesting is that Fazzari says:

"I still maintain tight technical standards for uncirculated coins in my personal life; yet this view of coins must be relaxed in a grading service atmosphere."

 

It should be noted that Fazzari now works for ICG and follows that line with:

Since 1986, the major grading services have strived to equate a coin's grade with its value.

 

This almost suggests market manipulation... which he suggests he participates in! Why not grade the coin on its technical merits and not because the the "market" suggests something? Who defines this "market?" What standard is it based on? What happens if the market changes?

 

The more I learn about some of the details of the TPG game, the more I am glad I collect mostly raw coins! I am glad I am divesting some of my graded coins, mostly moderns. I am not sure that the "market" will hold those coins in high regard in the future--maybe even less than they do now.

 

Scott

 

While I will never understand why a grading service changes its standards based on whims of the marketplace, I do not think the change in standards between AU 30 years ago and MS now are due to those swings. There has been a shift in how we perceive what uncirculated means. Many of the AU's of yester-year are uncirculated coins that simply have scraping across the high points, what we call cabinet friction (because the most common cause was the coins sliding around in the old fashion cabinet drawers of collectors past).

 

The grading services have attempt to differentiate between cabinet friction and circulation wear, where graders of the past simply labeled such coins AU. Often the difference is that worn coins will loose luster on the high points, while cabinet friction scrapes and tends to create its own luster (leaving the high points shiny. In addition, the fields of slightly worn coins will have been rubbed just enough to loose a microscopic layer of luster, this faint disturbance which might be just a single strip of dullness somewhere in the field, can be detected under the proper lighting.

 

That said, I have seen obviously worn coins grade Unc in some cases. I think its a lot less often than people think, though inconsistency is commonplace in certification, as a rule, and it happens more oftne than I would like to see.

[WoodenJefferson]

Also, lots of collectors, especially the ones who have jumped into the market in 1999, do not fully understand how these grading services started and why there was a need for them in the first place. Comprised of coin dealers, who could better attempt to regulate a hobby that was rife across the country with Shady Grady’s.

 

When the major services came together, they talked to the movers & shakers in the coin world and got the feedback from them in order to design the working model. Once the company got off the ground, these dealers had to pledged that they would back the plastic and agree with what ever number grade was placed on the label, doing so, allowed them to remain an authorize dealer.

 

This was a very dramatic action that was soon embraced and just took off, so that not only do the dealers believe in the services, the end collector is also protected from Shady Grady.

 

The end.

 

[PerryHall]

It's called "market grading". If an AU58 slidder is worth MS61 money in the marketplace then the slabbers give it the MS61 grade. They are essentially pricing coins. I don't necessarily disagree with this approach.

[James_OldeTowne]

I'm afraid I must disagree with the idea that TPGs have somehow "stabilized" pricing. If anything, I feel certain the opposite is true. Fluctuation in the market was never so rampant 30 years ago as it is today. $100 for an MS-67, and $75,000 for an MS-68? This type of insane spread simply did not exist before TPGs.

 

Sadly, and to that point as well, the advent of certification has priced so many coins out of reach that were not so in the 1970s and 1980s. I could actually afford a 1916-D in "VG" while I was in high school (early 1980s), but the price is crazy now! No, I believe certification has led to an enormous influx of casual cash into the market, and that "manipulation and chaos" are more rampant today.

 

Which lead back to the point of the OP and the fact that was pointed out by others: TPGs price coins, the don't grade them. Therefore, if the value of a technical AU-58 (usually an attractive coin) is perceived as higher than that of a technical MS-60 (usually an ugly coin), then the AU-58 gets bumped to MS-61 or 62. Now, THAT is chaos!

[L1ncolnF4n]

Interesting thoughts. In my opinion, I like my pieces certified, with some number given to it by a company. I didn't always think like this, and as a matter of fact, my first certified purchase was the start to my registry days. I still do buy beautiful raw coins, and often see problems in market grading. I especially have a problem with CAC. If the TPG's are in business to assign proper grades, why does another company have to come and agree with them, let alone create their own standards.

 

Honestly I'm for figuring out some way to computerize grading (today's technology outdoes that of CompuGrade). That way it doesn't have to be opinionated as much. Yet none the less, people will always disagree with a number, more often than not, it's the seller/owner.

 

I try to take the time to find a coin that I feel grades a particular number, rather than what it says on the holder, and if they match, that's a winner.

[michael]

i have absolutely no problems with the CAC

 

all they are doing is separating the middle to higher end coins for the grade from the low end to overgraded and problem doctored coins in holders that will hurt the unknonledgable

 

there has become a two tiered market

 

for example

 

three coins all graded ms63 in the same holder; same type; date and mintmark

 

one is doctored; the other is really a just made it for the grade; and the third a real 63

 

the true ms 63 should be worth more not the same as the othet two the other two MIGHT AND MANY TIMES DOES hold down the price of the real coin in this current market

 

cac will sticker the real at least solid for the grade 63 and above

 

services have made many blantent mistakes which they cant buy back as it would bankrupt them ... but what will happen to all these coins; the hozer (yiddish for pig food in other words fit for pigs) in the holders??

 

a CAC stickered coin might help an unknowledgable buyer not get ripped off

 

 

[James_OldeTowne]

I think that maybe scarier than "yesterday's AU is today's MS" is gradeflation in other areas. For example, I've seen seated coins (other than 20c pieces) graded F-12 or even higher with only two or three letters in LIBERTY present. I've seen coins graded VG that had an incomplete rim, and I've seen AU coins with all their luster completely wiped out. Indeed, I believe if anything, yesterday's XF is today's AU... and worse yet, MS-63!!!! Take a look at how gold was graded in the Eliasberg sale. I traced some of those coins that Bowers & Merena graded VF that ended up in AU holders, and I am not kidding, some of the coins they graded XF ended up certifed at MS-61, MS-62, etc.

 

I believe the standards were more strict 30 years ago. BUT, they were applied less consistently than they are today. In other words, where slabs have helped is that once a coin IS graded XX, it remains XX (barring resubmission). So that brings buyer and seller closer together as a starting point. 30 years ago, you saw much more of the buyer grading something VF, but the seller grading it XF+, and that is how buyers took advantage of less knowledgeable sellers.

 

Now, the problem hasn't gone away. Today, a slab may say VF-30 and nobody can argue about that fact (what the slab says). So the argument has shifted to the buyer thinking the slabbed VF-30 is ugly, and the seller saying it is PQ and undergraded. That puts us right back where we started, with disagreement over grade, but at least the starting points for buyer and seller are closer together.

 

CAC may or may not help out. I really don't know, though I feel their efforts are weak at best. The plan is supposed to be to designate "PQ" coins for you, rather than putting you at the dealer's mercy, but the problem is that when you get right down to it, very, very few coins are truly "PQ" in slabs. What's rampant is the coins that are overgraded in slabs, and those are the ones that need a sticker - a "frowny face" so to speak.

 

In my cataloging experience of about the last four years, I have had to reduce my gut feel of what percent of certified coins on the market are PQ. I used to guess it was about 10%, and honestly, I now believe that maybe 2% of certified coins are PQ. Again, be sure you understand that I am speaking of coins actually on the market. There is a higher percentage of coins OFF the market that are PQ, simply because knowledgeable collectors buy them and keep them for a long time. So you could certainly see a collection of certified coins in which 50% are PQ!

 

And finally, to conclude, I am sorry to say that, again in my experience, at least 15% of certified coins today are simply overgraded, and at least another 15% are the very bottom of the barrel for their grade. So to boil it all down, my contention is that 2/3 of all certified coins on the market are solid and "nice" for the grade.

 

Perhaps I am more cynical now than I used to be, but one advantage of cataloging for an auction company is the opportunity to examine several thousand certified coins per year. Of course, I have no particular expertise or vast knowledge of grading. I can only give my "collector's perspective" for you.

[coinman1794]

I dont have any specific examples, but I doubt I would consider the 30-year-ago XFs that graded MS61 to be XFs. I think things were actually less precise 30 years ago in many wasy, and not that grading has become looser. If a coin lacked details, it made a low grade, even if strike was to blame. Actually, a lot of the Full LIBERTY rules are outdated, now that the hobby more actively tries to distinguish between mint-made and post-mint flaws when grading coins.

[Nutmeg Coin]

Interesting old thread on grade evolution.

[RWB]

Iguanas and humans evolve, not coin grades.

[Nutmeg Coin]

One of the grading service leaders spoke to evolving standards: http://www.ngccoin.com/news/viewarticle.aspx?IDArticle=2259

[Conder101]

Iguanas and humans evolve, not coin grades.

Right, they're like pufferfish, they inflate.

[MarkFeld]

Interesting thoughts. In my opinion, I like my pieces certified, with some number given to it by a company. I didn't always think like this, and as a matter of fact, my first certified purchase was the start to my registry days. I still do buy beautiful raw coins, and often see problems in market grading. I especially have a problem with CAC. If the TPG's are in business to assign proper grades, why does another company have to come and agree with them, let alone create their own standards.

 

Honestly I'm for figuring out some way to computerize grading (today's technology outdoes that of CompuGrade). That way it doesn't have to be opinionated as much. Yet none the less, people will always disagree with a number, more often than not, it's the seller/owner.

 

I try to take the time to find a coin that I feel grades a particular number, rather than what it says on the holder, and if they match, that's a winner.

 

It sounds as if you do something similar to what CAC does - evaluate the assigned grade for yourself. Yet, you have a "problem" with CAC.

[Mr.Mcknowitall]

Interesting thoughts. In my opinion, I like my pieces certified, with some number given to it by a company. I didn't always think like this, and as a matter of fact, my first certified purchase was the start to my registry days. I still do buy beautiful raw coins, and often see problems in market grading. I especially have a problem with CAC. If the TPG's are in business to assign proper grades, why does another company have to come and agree with them, let alone create their own standards.

 

Honestly I'm for figuring out some way to computerize grading (today's technology outdoes that of CompuGrade). That way it doesn't have to be opinionated as much. Yet none the less, people will always disagree with a number, more often than not, it's the seller/owner.

 

I try to take the time to find a coin that I feel grades a particular number, rather than what it says on the holder, and if they match, that's a winner.

 

It sounds as if you do something similar to what CAC does - evaluate the assigned grade for yourself. Yet, you have a "problem" with CAC.

 

Good Morning, Mark.

 

In fairness to Mr. Lincoln, his posted thoughts are dated 8/2009.

 

It is quite possible his thoughts have evolved....for better or worse is unknown.

 

After all, he used CompuGrade as a starting Bar to jump higher. I would hope that part of the opinion has changed just a little, in the last 6 years.

[MarkFeld]

Interesting thoughts. In my opinion, I like my pieces certified, with some number given to it by a company. I didn't always think like this, and as a matter of fact, my first certified purchase was the start to my registry days. I still do buy beautiful raw coins, and often see problems in market grading. I especially have a problem with CAC. If the TPG's are in business to assign proper grades, why does another company have to come and agree with them, let alone create their own standards.

 

Honestly I'm for figuring out some way to computerize grading (today's technology outdoes that of CompuGrade). That way it doesn't have to be opinionated as much. Yet none the less, people will always disagree with a number, more often than not, it's the seller/owner.

 

I try to take the time to find a coin that I feel grades a particular number, rather than what it says on the holder, and if they match, that's a winner.

 

It sounds as if you do something similar to what CAC does - evaluate the assigned grade for yourself. Yet, you have a "problem" with CAC.

 

Good Morning, Mark.

 

In fairness to Mr. Lincoln, his posted thoughts are dated 8/2009.

 

It is quite possible his thoughts have evolved....for better or worse is unknown.

 

After all, he used CompuGrade as a starting Bar to jump higher. I would hope that part of the opinion has changed just a little, in the last 6 years.

 

Thank you, John. I had not noticed the date of the post to which I replied.

[Hard Times]

i have absolutely no problems with the CAC

 

all they are doing is separating the middle to higher end coins for the grade from the low end to overgraded and problem doctored coins in holders that will hurt the unknonledgable

 

 

 

 

Er, ah, 'they' (meaning CAC) are subjectively deciding what is A,B, vs. C. Someone else, with as much experience, might happen to agree or disagree. Coin grading is subjective. If you are going to spend lotsa coin on coin, ya better learn how to grade without CAC or you are going to be not too happy. What CAC has done is developed a market that ultimately has driven the price of CAC beaned coins up. Whether that is good or bad, is up to each individual to decide.

 

I will go back to my 1813 PCGS XF 45 bust half, upgraded to NGC AU50, was rejected in that holder by CAC; and then upgraded to PCGS AU53, and got the bean. Yup............ So are they really 'separating the middle to high end coins for the grade from the low end to overgraded and problem doctored coins in holders that will hurt the unknonledgable [sic]'?

 

Best, HT Who believes in CAC but only about 80% of the time.

[Hard Times]

 

CAC may or may not help out. I really don't know, though I feel their efforts are weak at best. The plan is supposed to be to designate "PQ" coins for you, rather than putting you at the dealer's mercy, but the problem is that when you get right down to it, very, very few coins are truly "PQ" in slabs. What's rampant is the coins that are overgraded in slabs, and those are the ones that need a sticker - a "frowny face" so to speak.

 

 

James,

The more knowledge I get, the more I have come around to your thinking over the past several years. I agree that CAC may or may not help. I think they get it right most of the time on acceptance and rejection, but frequently do not. I have a beaned MS62 seated quarter that I have shown to some of the best graders I know (one who is prominent on these boards) and we agree that at best it is a 58. But that is the grading subjectivity coming and and certainly even the best graders are not immune to it. This is why it is so important to learn as much as possible about grading, no one can have the final say for you on a coin but you.

 

As they say, one persons 62 is another persons 58, very few of us are immune to this.

 

Best, HT

[RWB]

"As they say, one persons 62 is another persons 58, very few of us are immune to this."

 

Anyone who cannot tell one from the other should not be "grading" coins.

[mumu]

Although I wish there was a healthy raw coin market to reward those who put in the work and learn grading, I hate that most raw coin sellers price their coins as if they are slabbed in the grade they have decided it is. Makes it nearly impossible to justify the risk from buying a slabbed piece. Yes, yes, I know there are exceptions and people make coins all the time. But that is a finite pool as eventually someone's goal is to get the coins slabbed.

[Afterword]

"As they say, one persons 62 is another persons 58, very few of us are immune to this."

 

"Anyone who cannot tell one from the other should not be "grading" coins."

 

 

 

 

 

That might explain why TPGs are so popular.

 

 

 

 

 

 

 

 

[Mr.Mcknowitall]

Although I wish there was a healthy raw coin market to reward those who put in the work and learn grading, I hate that most raw coin sellers price their coins as if they are slabbed in the grade they have decided it is. Makes it nearly impossible to justify the risk from buying a slabbed piece. Yes, yes, I know there are exceptions and people make coins all the time. But that is a finite pool as eventually someone's goal is to get the coins slabbed.

 

While I understand your sentiments, I am not sure there is not a healthy raw coin market. Every Show I attend, many of the collectors are doing just that: searching raw coins, not necessarily the best of the best of the best, but acceptable coins for the collector in the condition the collector is searching for. Many of these individuals appear to me to be capable of making numismatic decisions, and they are rewarded by the very fact that they have purchased an acceptable coin to them, at a price they can afford. Of course there are collectors with lesser knowledge of the quality of a raw coin, but in a way they are also rewarded by the learning experience and improvement of their knowledge.

 

Why "hate" a seller that sells the coin for what he/she believes it is worth? Why is the risk any greater buying a raw coin at the technical grade that a collector decides it is? After all, the seller is selling....the choice is that of the buyer to determine their preference.

 

Why is it nearly impossible to justify the risk? So the coin is priced as if it is in a slab. Why is this any greater a risk to an experienced person than the same person buying a similar coin in a slab?

 

If you believe that the slabbed coin is of any greater risk free level than a non-slabbed coin, then why would you care what a raw coin is priced at by the seller?

 

You seem to be stating that if 2 coins were of equal/similar technical grade and eye appeal, and one is in a slab and the other is raw, the dealer should escape customer hate, by pricing the non slabbed coin for less. That is not logical, in my opinion.

 

Is your dislike rooted in the inability to make your decision based on the coin, or is a general distrust of non-slabbed coins? In other words, do you prefer that a TPG do your decision making for you, and then you are not at risk, in your opinion?

[copper toning]

Mumu's comment is understood by 99% of forum members including you. So either you are watching out for the 1% or you are simply stirring the pot. Everyone knows that there is a risk with any raw coin. You could have the same coin come back in the same grade 10 times then on the 11th drop a point or 2 or not grade. 99% of us know that point or two can make a large monetary difference. Hate may have been a strong word but a point was being made.

 

Now you can make your long winded rebuttal which will most likely be to boring to finish reading but I will try.

[Mr.Mcknowitall]

Mumu's comment is understood by 99% of forum members including you. So either you are watching out for the 1% or you are simply stirring the pot. Everyone knows that there is a risk with any raw coin. You could have the same coin come back in the same grade 10 times then on the 11th drop a point or 2 or not grade. 99% of us know that point or two can make a large monetary difference. Hate may have been a strong word but a point was being made.

 

Now you can make your long winded rebuttal which will most likely be to boring to finish reading but I will try.

 

My goodness.

 

I did not mean to promote an us against them.

 

I will try not to offend you in the future.

 

I can not reply to your thoughts concerning the 1% vs. 99% issue, for the simple reason that in my opinion it is silly.

 

Collectors, in general, but certainly not everybody, know there is a risk with a raw or a slabbed coin.

 

I must have offended you at some point on some subject, and for that slight I apologize. I don't know what it may have been, but I am certain that if I did so, it was via courteous language. I truly hope you have a better day tomorrow, that allows for a modicum of manners toward others that have a different thought than yours

 

Should you wish to inform me as to why you are irate, please pm me, so other members can be entertained in other ways.

 

As to my Post, it stands. For a person to hate dealers or anybody else for pricing a non-slabbed coin as a slabbed coin, if the coins are of the same quality, and to declare a raw coin "market" is somehow offensive, is not logical. It is also not logical to care about it one way or another, if that is the opinion of the person, because the person would simply not purchase any raw coin. By that logic, anybody selling raw coins are in the hate category, and indicates that the person that holds that opinion surrenders his/her trust and ability to decide the worth of coin to a TPG. There is nothing wrong with the opinion, but it certainly doesn't justify condemnation of all that buy or sell raw coins, or in the alternative it is an indication that the person is upset because he/she can't get a worthwhile coin on the cheap that he/she could make money on.

 

Lastly, I believe, although I could be wrong, I am allowed to state an opinion on this or any Forum that differs from others, as long as it is done with courtesy.

 

[Mr.Mcknowitall]

I understand the source of your ire, now....the Dealer-Buyback Thread.

 

I can not correct that which was of your own making.