BY RICK SNOW, GUEST CONTRIBUTOR

Why do we need a new grading system? The 70-point grading scale was developed as a premium factor for 1794 large cents in the 1950’s by William Sheldon. In the 1970’s it was added to the Official ANA Grading Standards which has been used by certified grading services ever since their inception in the 1980’s. We all agree that certified coin grading is a boon to the coin market and is a necessary component of the worldwide coin market. So why change?

The problems inherent in any certified grading scheme is grading inflation. It happens gradually over time and was first known to effect a market segment in the 1990’s. We all know how grading inflation occurs, so I am not addressing this here. There is no cure for human nature. The ANA grading standards were thought to be fixed in stone when finalized in 1977. However, we have ceded the ownership of those standards to the grading companies and they are now its stewards.

What we are seeing now, 30 years after certified grading started, is that there are many more overgraded coins in the market. Sticker services, like CAC and Eagle Eye Photo Seal were born out of the desire to label the coins that are properly graded. Now, QA, WINGS, MAC have also followed this idea. However, the remaining coins that are overgraded remain out in the market. When these coins sell at auction, the price realized will typically be lower than the stickered coin. These lower prices will then get used and reported as the actual market. Each time the overgraded coin sells below the market, it will lower the whole market to that new lower level.

I believe what needs to happen is to bequeath the Sheldon 70-point scale to the grading services use only. We then need an alternate grading system based on the ANA Grading Standards that will not change from the influence of changing certified grading standards. This is where the PDS grading system comes in.

What is PDS grading? Instead of using the Sheldon 70-point scale to assign a number grade, we take the ANA Grading Standard and assign a quality qualifier. The basic ANA Grading Standard grades are: Poor, Fair, About Good, Good, Very Good, Fine, Very Fine,Choice Very Fine, Extremely Fine, Choice Extremely Fine, About Uncirculated, 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 PDS system uses these grades and qualifies them with a scale for each grade. The scale is a 0-15 number derived from three different factors – Planchet, Die and Strike. Each of these factors are given a 0-5 ranking and then the qualifier is a sum of those numbers.
Planchet
5 = Close to perfect. Very few, close to no marks.
4 = Better than average marks, original surface.
3 = Average marks, silver and gold might be dipped.
2 = Above average marks, and/or light hairlines from a past cleaning.
1 = Past cleaning is evident.
0 = Cleaned, not tooled or whizzed (Tooling or whizzing disqualifies the coin)
Die
5 = Very early die state - Deep mirror or matte surface.
4 = Early die state. Details sharp. Some cartwheel, mirrored fields or matte surface
3 = Average die state. Very little distortion of letters and devices. Moderate cartwheel, dull mirrors.
2 = Slightly late die state. Some distortion of the devices and/or letters.
1 = Late die state. significant die wear - Heavy distortion on letter and/or design.
0 = Very late die state. Loss of major detail due to die wear.
Strike
5 = Full strike. Full details on letters and all devices.
4 = Good strike. Most design and letters fully stuck.
3 = Average strike. Some design lacking definition due to strike.
2 = below average strike. Some detail close to missing.
1 = Weak strike. Some details missing due to strike.
0 = Very weak strike. Major design loss due to strike.
Color (copper or bronze only)
RD = Full red color.
RB = Red-brown, with a percentage of red.
BN = Brown (optional)
The basic grading notation is:
“Adjectival grade” (“Qualifier”: “Factor for Planchet”, “Factor for Die”, “Factor for Strike”, “Color Designation”). As an example: Gem AU (13: 4, 4, 5, 10%)

The adjectival grade is taken from the standards known to all and published in the ANA grading standards. The qualifier is taken in the example above from a ranking of 4 for Planchet, 4 for Die and 5 for Strike and RB 10% for the color designation. The coin described above is a very nice coin. It has just the slightest of wear. Better than average marks and is original. It is an early die state with sharp detail. Most, but not all of the details are fully struck. It has a trace of original red color.

You can tell much more from this system than if I called it a AU58RB.

So, now this coin, as happens so much today, is resubmitted and receives a MS62RB grade. OK, so it obviously shows wear, but I guess this is market grading. Now you can describe it as follows:
Typical Unc (9: 2, 4, 3, 10%)

This is the same coin but now that we are assigning a different adjectival grade to it, imposed by the grading company, some of the factors will change. The Planchet factor is lowered to a 2 to account for the light “wear” visible. The Die factor stays the same and the Strike factor is lowered since some might argue that the wear is actually a strike deficiency. Thus the above average Gem AU (13) is now just an average Typical Unc (9). If the coin received a MS65RB grade, then maybe the factor would drop to Gem Unc (6).

The same coin can have different qualifiers as its adjectival grade changes. The above example might be an example of an undergraded coin reaching its proper level, or of a properly graded coin getting an grade it really doesn’t deserve.

The key is to identify above average for the grade against average for the grade or below average for the grade.

You can call a coin a 10, or a 13 PDS qualifier and we will know that it is an above average coin. We can call a coin a 9 PDS qualifier and know it is average for the grade. The ones that have a PDS qualifier that falls below 9 are low end, and likely overgraded or just not worthy of the price expected for the grade. It is these coins that will negatively affect the prices realized at auction and make the market suffer when those prices get reported as the actual market.

By eliminating the 0 to 8 PDS qualifier coins from the pricing reporting mechanisms, we will not have them negatively affect the market. If a XF coin in an AU holder sells for ½ price, then your properly graded AU coin will lose its value when that lower price gets reported. In a perfect world, price editors would recognize the overgraded coins in the data points, but when all auction records are aggregated and posted as the real market, that job becomes very difficult. If more than 50% of the coins that trade are overgraded by ANA grading Standards, then the lower price for the overgraded coin becomes the norm. If you would like that to stop you should use the PDS grading system.

Rick Snow is the founder and owner of Eagle Eye Rare Coins, of Tuscon, AZ (www.indiancent.com)

editor’s note: Is this a practical idea? What do you think? We will post this article on our blog and Facebook page and look forward to reader feedback.