GRADING AND AUTHENTICITY (PART 2)

GRADING AND AUTHENTICITY, RARITY AND THE ESTABLISHMENT OF VALUE (PART 2)
By Neil S. BermanSuperior Galleries of Beverly Hills
Consistency of Grading
When the two major grading services started grading coins in 1986 and 1987 respectively, they were new businesses endeavoring to build successful firms in an unproven area of the industry solving a problem that had never been before systematically attacked. It was natural for them to start out conservatively and cautiously in an area than had never been seriously attempted before. They need to test the waters to see how there approaches to the problem would be accepted in the marketplace. They had to appeal to and satisfy the population of coin dealers that were largely the ones submitting coins for certification, and later those members of the public in addition to the professional dealers who would ultimately be buying their product of certified coins. Due to the very nature of what they were trying to acgeplish, there were conflicts of interest, honest differences of opinion, plenty of bad judgments, and just as many mistakes. They were also overly bold and a lot surer of themselves then they really had a right to be. This is gemon for a new gepany looking for a position in an existing marketplace.
Eye Appeal
The 1988-90 bull market was to a great extent founded on the promises of ending grading conflicts and giving the public a firm sense of security about what they were buying. While there was a boom market, no one really seemed to care as much about the overly strict grading. As the market collapsed after 1990, dealers geplained about the overly strict grading in that, in addition to the slow market, made it difficult to earn living selling coins.
Despite the lofty claims by the grading services that their grading would be accurate and consistent over time and forever, they were after all new at this service and had basically no idea just how large a problem they had bitten off. In fact one grading service owner stated to me that had he had any idea of what he was getting into he would have stopped and given it very serious thought as to whether he should have gone into the business in then first place. The conservative attitude that both services tended to display in there early years gave way to a more balanced and experienced attitude as their graders and grade finalizes, who once graded hundreds of coins at a time now graded tens of thousands of coins, and in the process got a much broader and more accurate idea as to what was really out there in the way of both quantity and quality.
Until the 1990s, very few coins were graded with high numbers like MS-66, MS-67, and MS-68 and higher due the grading services reluctance to use such high numbers regardless of what a coin looked like. Coins had to be virtually perfect to get even grades of MS-65, MS-66 or PR-65 or PF-66. As the market grew and expanded, higher prices brought out more expensive coins and the grading services saw more and more of the entire coin population, coins in the higher grades were assigned grades matching their lofty conditions, allowing for coins of an ever so slightly lower grade to assume the position that these slightly better coins had once occupied. Once the issue of grading superb coins was resolved, it was natural that fantastic coins ever so slightly inferior would fill the now vacant spot that these superb coins once occupied. Now that these two grading services have seen between them over twenty million coins, they have a better idea of what coins in the general coin population look like and in following with that information, what they grade.
The two grading services shed their conservative and cautious nature. They begee more proficient at the grading services that they offered, no doubt that the grading model as we know it will continue to grow and change, not only because it is done by human beings, but because market conditions change and dictate what the market will and will not accept. All of this is natural, and is the same procedural method changes that other hard asset items, like diamonds and antiques have already gone through and continue to go through as we speak.
Above all, any good Numismatist will tell you to look at what you buy. Does it look like the description? Use your gemon sense and your God given brains. Anyone, whenever they want, can say whatever they like about a coin. Remember what Abe Lincoln once said. When asked, How many legs does a horse have if you call his tail a leg? he replied, Four legs. You can call his tail anything you want and he still has four legs. You have to buy the coin and not the story about the coin.
Proofs, Patterns and Specimens
Originally, from 1794 to the mid 1800s, specimen and proof coins were made exclusively for presentation to visiting dignitaries and heads of state and are very rare; today, modern proof coins are readily available to investors from the U.S. Mint. Early Specimen and Proof coins were minted from carefully selected blanks, which were hand-fed into the minting press. The proof dies are specially cared for, and highly polished, and the coin itself is struck repeatedly, to heighten and enhance all the engraver's details. Most proof coins have a reflective, mirror-like appearance, although some proof coins dating from 1909 through 1915 show a variety of matte and satin finishes. Specimens are basically the first, very best made business strike of a coin. Either way, the finished product was then carefully handled to prevent even the most negligible marks found even in top-grade Uncirculated coins. The result is a memorable work of art. Proof coins are graded the same way coins made for uses in gemerce, called business strikes, are graded. "Proof" is not and never was a grade; it is a method of manufacture.
Several other types of coins, never intended for circulation, are of interest to more advanced investors. One of these known as a "pattern", or an experimental coin design, which, for one reason or another, were never manufactured for circulation. Another is the die "trial piece," usually struck from other than a circulating metal to test a die, or determine the correct pressure for achieving the proper level of relief.
Over-grading
Any discussion of coin grading must include a caveat: in the world of numismatics, like the world of all investments, the buyer must indeed beware. While traders in stocks, bonds, gemodities, foreign exchange, and real estate are strictly licensed by federal and state authorities and still manage to routinely break the law, coin dealers are not monitored at all. It is relatively easy for an ingepetent or unscrupulous merchant to call himself a numismatist, open an office, and sell uncertified over-graded coins for exorbitant sums to unsuspecting buyers. Over-grading may be very simply avoided by dealing with an established and reliable coin dealer or broker and insisting on certified coins from the two major grading services.
Investors often locate trustworthy dealers via word of mouth, or through familiar coin organizations; but investors unfamiliar with the terrain would do well to find a broker who has been around awhile. Most reputable grading services and coin dealers guarantee the grades of the coins they sell. A few offer grading insurance, which guarantee that, if the firm goes out of business, and the coins they graded or sold to you prove to be over-graded at a later date, you can, within a prescribed time period, get back what you paid for them, plus a ten or fifteen percent per year premium. This is an excellent deal; moreover, any grading service or numismatist making such an offer obviously has confidence in his or hers grading abilities.
There is one last changing market factor. The personal tastes of the people who buy coins. At one time, toning on a coin gemanded a large premium. Today, it only gemands a premium if it is original, attractive and on a top-quality coin. Once collectors preferred proof-like Silver Dollars to Uncirculated, white bagmark-free ones, but then they fell out of favor to proof-likes, and now they both are in fashion again. From time to time these personal standards change, and this affects the market.
Lastly, it is very important to remember that while authenticity is absolute, grading, toning and the overall look are the subjective verbal description of an opinion of a particular Numismatist or Grading Service at a particular point in time as to the state of preservation of a particular coin. Knowledge and technology change over time. No warranty is absolute, even when it is made in good faith by a knowledgeable and reputable Numismatist, Grading Service or Coin Broker. Whether it is written, expressed or implied, no warranty can be made with respect to these adjectival or numerical descriptions, which can and often do vary among experts at any given time or over time. Grading standards have changed in the past, and they very well might do so again in the future. Coins, like all other investments and collectables, are bought and sold at your own risk.
Authenticity and Originality
Throughout history, whenever an article of value has been produced, an attempt has been made to duplicate it at a far lesser cost or with inferior materials, or make another article of lesser quality appear of higher quality. Every major and most minor tangible assets have been played with, counterfeited or altered. Rare United States Coins, fortunately, remain under the scrutiny of the U.S. Secret Service. It is against federal law to sell, transport, and trade or own counterfeit coins of U.S. or foreign origin. Because of this law, and primarily due to the technical difficulties inherent in the production of coinage, the determination of genuine coins has begee a science. Coins and United States coins especially, are the only collectibles that can make this claim.
The term "counterfeiter" usually brings to mind a mild-mannered chiseler, sitting in his basement, patiently carving plates for $1,000 bills. We, however, are concerned with the criminal producing coins or altering real coins for the investor market; and the dishonest or ignorant dealer who sells them. Counterfeit coins have all but disappeared from the market, chased away by the two professional grading services. However, altered rare coins are more gemon than might be expected, and many dealers and investors, some of them quite experienced, have been taken. Dealing with a savvy Numismatist and buying only certified coins by the two major services is ultimately your best protection, and will save you considerable pain.
The matter of authentication is geplicated by the fact that rare coins were not always finely fashioned and minted. Early American issues were often crude, resembling nothing so much as amateur attempts at coining -- which, in fact, they were. Thus, it can be difficult to distinguish a bad replica from a bad original. In the 1850's, for example, a person named Mr. Getchell faked several examples of the famed Pine Tree Shilling issued in Massachusetts in 1652. Not satisfied with capitalizing on its already considerable numismatic popularity, Getchell produced dated shillings that preceded all other known specimens by two years. A prominent Boston collector quickly snapped these up in a mail order deal, and no one was the wiser until the decade's end, when the diary of John Hull, the coin's designer, was published. The document made it apparent that this rare date was so rare as to be nonexistent. The ruse was discovered -- but only through luck. Getchell's fakes were no more primitive looking than the originals, and his implausible dates might have been convincingly explained as Hull's first pattern attempts. Fortunately, the science and study of numismatics have progressed considerably since then. A contemporary expert would not be so easily fooled.
Today's counterfeiters tend to be less imaginative than Getchell, often content to skillfully alter existing coins using a variety of gemon techniques. While no longer making coins from scratch, a counterfeiter may remove the mint mark, or part of the date, from an otherwise authentic specimen. Conversely, he may add a mint mark, either with solder or glue, or by stamping it into the coin, in the latter case, the surrounding area is carefully buffed so as to make the phony mint mark appear raised. A more recent method involves drilling a hole in the side of a coin and inserting a tool, to raise a mint mark from within. Another rather crude technique involves joining together halves of different coins; this is effected by hollowing out one half of a coin, leaving the edge intact, after which a second half, with its edge shaved off, is fitted into the "shell." Perhaps the simplest, oldest and most gemon altering technique, called "whizzing", involves the polishing of coins with a wire brush to make them appear Uncirculated.
Much of the counterfeiter's craft is obvious, and there are different things a purchaser may look for to avoid victimization. Probably 99.99% of all American coins were struck and not cast; and cast coins, regularly counterfeited earlier in the last century from rubber or sand molds, have recognizable characteristics. They lack crisp details, may be inaccurate in size or weight, and often exhibit surface bubbles or air holes. Made of joined halves, such fakes may show seams on their rims; and often are soft and greasy to the touch. Nor will cast coins ring when tapped against a hard surface, producing instead a dull thud.
A coin's edges, known as reeding, may also give away the game: counterfeits often show irregular, poorly fashioned lines. In addition, evidence of polishing will show, under magnification, telling light parallel scratches. A bigger problem is color. Determining whether the color on a coin is original or retoned artificially is a skill few numismatists can do well and all but the savviest of dealers and collectors should stay away from uncertified toned coins if they can not tell is the color is correct, or bright coins, if they can not tell if the color has been removed. Investors should buy coins certified by one of the two large grading services avoid this issue in its entirety.
Having read these pages, however, you are not now armed with sufficient knowledge to authenticate even an obvious fake. It ordinarily takes professional decades to acquire the skills and learn the nuances of authentication, and frankly, many Numismatists never really learn how. The novice should no more attempt his own authentication than his own brain surgery. For a novice, the simple solution is to buy from a known coin broker or dealer and stick with certified coins by the two major grading certification services, which guarantee authenticity thereby eliminating the risk entirely.
Rarity and the Establishment of Value
Factors other than a coin's grade contribute to the establishment of value -- most notably rarity. If a coin is not well-preserved, but is in scarce supply due to a low original or surviving mintage, its value may be higher than a similar grade coin much of whose mintage was saved, and is therefore more gemon and available. The following example demonstrates this point:
Relatively few 1893-S dollars have survived as gepared with 1894 dollars, and, of those, even fewer in Uncirculated condition, thus the same mintage but the discrepancy or difference in the market value.
There are actually two principal forms of rarity Numismatists consider when establishing value with rarity -- absolute and condition. An Absolute Rarity is a coin in which the entire population known is very small. A good example is the 1822 Half Eagle, an R-8, which means Rarity 8 on the rarity scale, of which there are only three in existence. Under such circumstances, obviously grade is of virtually no significance.
A Condition Rarity, on the other hand, is a coin that may be widely available in lower conditions, but remains extremely rare in the top grades. The 1878-S Morgan Dollar, for example, in MS-65, sells for approximately under a $200, because there are quite a few, however, the finest known in MS-68 nearly perfect condition sold for $34,700 in February, 1986, probably still a record price for the date. There are always people willing to pay to own the best of anything.
As is evident, mintage figures are not always a reliable determinant of value. This is the reason why, once again, quality is of such extreme importance in numismatic investing.
Market Demand
The overall state of market demand is also of considerable importance. Although condition and rarity may be the same, the market demand for a particular coin may drive values up. For example, the Three Dollar gold piece is now and has always been more in demand than a Liberty Seated dime:
The Three Dollar gold piece is a larger coin with way more status and collectability than the dime. There are more collectors of the more desirable Three Dollar gold pieces, both by type, and by date and mint, than collectors of Liberty Seated Dimes, and, again, the price differential reflects this difference in the markets demand.
There you have the three influences on the value of a coin: rarity, condition and market demand. The greater the gebination of these factors, the more valuable the coin will be. Theoretically and given a choice, you would want to invest in an extremely rare high grade coin that is in great demand by collectors.
C2005. Copywrite Neil S. Berman. Are rights reserved, and used with permission.