Understanding Financial Problems

PDS: A Better Way for Grading Coins?

22 November 2016 by Letitia Moreno

The world of coin grading isn't the Wild West, but wildly fluctuating coin values caused by rampant over- and undergrading do add a sense of uncertainty to the market. As a result, many collectors are wondering whether there should be a new way of properly grading coins. The following takes an in-depth look at the problems faced by graders and collectors as well as how the PDS grading system tackles these issues.

A Look at the Current Grading Standard

The vast majority of certified coin-grading services currently use the Sheldon 70-point scale. Developed by numismatist and psychologist Dr. William Sheldon in 1949, the Sheldon scale was officially inducted into the Official ANA Grading Standards for United States Coins during the 1970s and quickly became the defacto standard in the coin market.

The Sheldon scale uses a numerical scale ranging from 1 to 70, with 70 being the highest possible numerical score. The numerical scoring is further broken down among 10 adjectival grades ranging from Poor (or Basal State), Fair and Very Fair to Extremely Fine, About Uncirculated, and Mint State. The idea behind the Sheldon scale was to assign a coin grade that not only accurately reflected the condition of the coin itself but also of its market value.

As Mike Sherman points out, the value of a 1794 one-cent coin in its Basal State in 1949 was worth $1 while a Mint-State variant of the same coin was worth $60 to $70, which was in line with Sheldon's then-proposed coin-grading scale.

Why a New Grading Standard is Necessary

While the Sheldon scale has served coin graders throughout the industry well, there are a few reasons why this particular grading system is slowly falling out of favor with graders and collectors.

1. The Sheldon scale doesn't provide much context for how a coin was graded, as the adjectival grading terms used for describing each coin's condition are largely ambiguous and governed by complex and ever-changing rules.

2. The Sheldon scale lends itself to market grading, with which coin dealers assess a coin based on the market value of other similar coins. As a result, a coin that maintains the same exact technical grade may end up with multiple market grades when assessed multiple times on separate occasions by the same grading service.

3. The escalating value of the highest-grade coins no longer reflects the Sheldon scale as originally envisioned. As a clear example, a Mint State 1794 coin that was worth $70 back in 1949 is now worth several hundred times that amount.

How PDS Works and What It Offers Collectors

Instead of the adjectival grades used by the Sheldon 70-point scale, the PDS grading system uses an expanded ANA Grading Standard that adds the following grades:

• Choice Extremely Fine
• Choice About Uncirculated
• Gem About Uncirculated
• Uncirculated/Proof
• Typical Uncirculated/Proof
• Average Uncirculated/Proof
• Choice Uncirculated/Proof
• Gem Uncirculated/Proof
• Superb Gem Uncirculated/Proof
• Perfect Uncirculated/Proof

The above grades are paired with 15-point system based on planchet, die, and strike, with each factor assigned on a scale of 0 to 5. Copper and bronze coins may also be graded based on color (brown, red-brown with percentage of red, or full red). The end result is a grading-notation system that better reflects the condition and actual value of the coin.

What the PDS grading system offers to coin collectors is the ability to return overgraded or otherwise unworthy coins back to their proper market pricing, thus preventing these coins from negatively impacting the market when their eventual sale prices are reported. For instance, PDS can prevent an Extremely Fine coin that would have been erroneously rated as About Uncirculated and sold for half the price of a similar, properly graded coin from lowering the market value of the properly graded coin.

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