Chapter two. Coin grading.

A very short primer about coin grades.

As you may imagine grading varies from the USA to Europe, etc. I am dealing only with the USA and only with the current standards. Current standards began in the 1970s. Professional grading services are even newer. One of the very first, Professional Coin Grading Service or PCGS, began operations in 1986.

Currently, there are mainly two coin grading services that I would recommend: Professional Coin Grading Service (PCGS) and Numismatic Guaranty Corporation (NGC). There are other companies out there such as ANACS, and ICG,  but you would be better served sticking with the first two in my personal opinion. Since PCGS was the first commercial coin grading company, they were the "gold standard" for decades. However, NGC has been making great strides by cutting into their market share possibly because they have a more modern looking coin holder.
Perfect coin. Graded by NGC
Grades run from 0 to 70, where 0 means that you can pretty much tell that it was once a coin while 70 means that it is a perfect specimen. This is known as the Sheldon Scale named after the man who devised it. Mint State (MS) grades start at MS60 and go up to MS70. A jump up of just one grade often increases today's dollar value by a 2X factor or even more. Grades below MS60 are for circulated coins and will not be a topic of discussion here. Unless the coin is a rare or special coin, buying less than a 60 isn't advised by me. But, suit yourself in any event. Information describing grades below MS is available many places online.

Older silver and gold coins basically do not exist in 70 grade. Very few 69 and 68s for that matter. Prices for anything above a 66 become almost unbelievable.

MS68 currently $6,599.00 (2014)
Unless you are going into this as a serious coin collector, and not as a basic investor seeking to diversify a little from just silver bars and junk silver (common date worn coins) you probably wont need more information than I am offering.

Personally, I believe the most "bang for the buck" today is with the MS64 and MS64+ coins.

MS means Mint State and a coin never in circulation. PR means Proof, sometimes listed as PF. Proofs are never minted for circulation but for coin collectors. Recently the grading companies have issued an "SP" designation in addition to the Mint State and Proof. These coins are not proofs. The SP stands for SPecimin and means just that. Today, those coins are produced for collectors in MS condition but never sent out to be circulated but treated like a proof coin at the mint. Personally, I can't see any logical reason for this designation. But I'm just a silver/gold bug and not into the depth as some others are.

All of these different conditions of coins were selling for about the same amount when silver spot price was at $34 and ounce as when it went down to $18 an ounce. They were, therefore, a small hedge against the volatility of silver price fluctuations in my opinion.

For me personally, I chose MS64 and 64+ after studying coin value charts. For example, an un-certified "raw" Morgan dollar is valued at about $30.00 in MS "appearing" condition. A common date certified MS64+ coin sells for around $80.00. When you subtract the cost of certification ($25.00) this means you pay about $55.00 for a coin graded professionally about four grades above that raw un-certified coin. That same coin sells for about $130.00 in MS65 which is a major jump in price for going up just half a grade. This is just my opinion based upon my study. You may arrive at a totally different choice. And, of course, all the dollar amounts will change as time goes on and are used here simply as an example of current conditions.

Note: In 2013, both PCGS and NGC implemented a “+” designation to coins. This simply means a coin which is graded MS64"+" is at the upper-threshold of a 64.  

There are lots of coin value books available and lots online as well. Many different things make a coin valuable to a collector. Condition, coloration, scarcity and content (silver, copper, gold) to name but a few. However, for my intent in this blog, you should avoid scarce, rare or mint error coins. They demand a serious premium today, but may not do so when the dollar crashes. Decide wisely.

Proof coins are coins which are struck on specially polished dies made primarily for collectors only. They are mirror like on most surfaces and basically have never been touched by people. They are also rated on the 0-70 scale just like MS coins. However, it would be pretty rare to find a proof coin below a PR-65. There are a lot of certified PR-69 coins out there due to the fact that many people and dealers submit a bunch of coins seeking the elusive PR-70 perfect coin. The cost to send dozens of coins to be graded will be offset by the premium received by selling the PR-70 for top dollar.

Here are two absolutely perfect specimens of the 2009 Lincoln Commemorative dollar:

Proof (PR) 70
Mint State (MS) 70
Proof coins are not always more valuable than mint state coins in the same condition. Many factors are at play. The number produced is one factor. In the case of the above example for the Lincoln Commemorative, the proof is worth more because there were fewer produced as individual coins not because it looks better. A bunch of the proofs were designated by Congress to go into the Lincoln Proof 'sets', reducing what was left for individual sales.

Above mentioned Proof Set.