Third Party Grading:
Is It The Future of Mexican Numismatics Too?
By Mexican Coin Magic Staff
In my opinion it is apparent that Third Party Grading (TPG) has become the most important phase of US Numismatics today! If you are collector of US coins and own gold and/or silver coins that aren’t slabbed you are probably no longer in the mainstream of US numismatics. Coin collectors, dealers and investors in the US coin market seem to spend more time and effort trying to find high-grade slabs than they do coins. These people don’t seem to care about the coins any more; all they want are high-grade slabs.
In the last issue of this column, (707) The Soap Box: What Is Happening To Mexican Numismatics Today, we gave you our assessment of the changes that are taking place in Mexican Numismatics, including today’s advancing prices. We introduced you to what we call the US Numismatic MS Wars and the affect it is having on US coin collecting. However, we failed to tell you how much this grading war is impacting all corners of US numismatics. There are still a couple of areas of US numismatics where Third Party Grading Services (TPGS), try as they may, aren’t in complete control of the US coin-collecting hobby. Collecting Early US Copper Coins is the most noticeable and largest segment where TPGS are still behind the 8-Ball. It still appears, to an outsider anyway, the collector base of US Large Cents and Half Cents control their hobby and its destiny?
But even this area of US numismatics is under extreme pressure. In last couple of years, in some larger US public coin auctions, we have seen two sets of grading standards for US Early Copper Coins displayed in auction catalogs. The first grading standard is the one used by the members of Early American Coppers (EAC) and the second applied by one of the TPGS. If you look at the different grades assigned by the two different sources and then the photos of the coins you wouldn’t even guess they represent the same coin. This double standard has become so confusing that Mark Ferguson, Coin Values Market Analyst, wrote an article in the August 9th 2005 issue of Coin World trying to explain these double standards to Coin World readers.
In this article Ferguson states,
“The EAC grading system considers various factors such as color, porosity and sharpness, and by ‘discounting’ these factors, arrives at a net grade. The net grade usually is a much lower grade than what the commercial grading services would assign, because the services seem to primarily rely on wear as a major grading consideration. A hypothetical example would be a coin graded Fine 12 by EAC that may end up being graded Extremely Fine 40 by a commercial grading service.
That’s a huge grading difference, which results in a huge price difference. As a result, Coin World and Coin Values have been receiving feedback from readers and users of our valuation guide indicating that dealers who specialize in early copper coins are unwilling to pay prices that are near the levels we list. This grading discrepancy has left both buyers and sellers greatly flummoxed about valuations.”
Boy, Ferguson’s statement is a mouthful!
"The Professional Coin Grading Service (PCGS) and Numismatic Guaranty Corporation (NGC) have assembled grading sets to help prevent their standards from shifting, but you should nonetheless learn how to grade on your own to protect yourself so that you buy the coin and not the holder."
What a one-sentence paragraph. Mr. Travers then goes to great length to tell his readers how not to get ripped off by unscrupulous coin sellers. Now remember this fact, because I wonder which, if any, Third Party Grading Services have “grading sets” of any Mexican coins?
I haven’t been able to find an exact definition for the term “market grading” as of yet. In the old days the American Numismatic Association (ANA) sponsored a book on grading US coins. Over the years there have been several updates to this reference work. However, this book was written when the grading standard was technical grading. Do any of you out there know of a book with photos of coins that uses “market grading” as a basis?
I didn’t think so. Therefore it seems the only people who can “market grade” coins are the TPGS people. Surely they can sell, or better yet give collectors who use their service, a set of photographs of their standard grading set for each coin denomination, mint, and country for which they grade coins to these new standards? In the future we will try to purchase a standard grading set of photographs for a Mexican coin series from the major grading services, and report back to you in a later issue of MCM with the results.
Interesting isn’t it? This seems to indicate that the TPGS can all grade Mint State coins accurately, but not circulated coins. This situation doesn’t speak well for Mexican coins, does it?
Grade inflation is also running rampant in US numismatics? Almost every issue of Coin World has a story about how a really rare US coin has been resubmitted to the same, or another third party grading service, and believe it or not most coins have jumped up a grade or two? None of these extreme rarities ever go down a grade, and very few stay the same.
Let me see if I understand this properly? By resubmitting or switching from one TPGS to another your coin actually gets better with age. We thought this only happened with cheese and wine. Guess we were wrong? One might ask why a number grade or two is that important? Well this grade or two difference could mean an assigned value increase of from as little as several hundred to tens of thousands of dollars to the seller and buyer. In fact, one highly thought of grading service is widely known by dealers to assign the highest grade.
Is this impartial third party grading?
Several years ago the TPGS searched for a new market segment in which to apply their magic? Because the foreign coin market is huge worldwide they attempted to penetrate this market. But after several years of effort the overall acceptance in most foreign coin markets for third party grading hasn’t been all that great, so far. The same question always seems to come up, “How Can You Accurately Grade Coins You’ve Never Seen Before?” Today most TPGS don’t have a good response for this question, so they have now shifted gears.
The latest news is the TPGS are now proposing a new 100 Point Grading Standard! How in the hell are collectors going to be able to grade with a 100 Point System when they couldn’t grade with an old 70 Point System?
The answer is simple … they aren’t! But one thing is sure; all of the old US coins are going to need to be re-graded in accordance with the new system, if it is accepted. Ask yourself, “Who will benefit or make any money from this new standard?”
Mr. Parker then sights some good examples of how “grade inflation” is now taking place in the US Paper Money Market. And guess who is behind this? If you said the Third Party Grading Services you would be correct.
But more importantly Mr. Parker states, and I quote,
“As you can readily see there is a wide discrepancy on PCGS Currency’s and PMG’s parts regarding the grades of notes. I would have to assume that PCGS Currency and PMG do not maintain population reports as do PCGS and Numismatic Guaranty Corp. with coins, or they would have noted the original grades of the notes. Also, it’s hard for me to understand how a note can pass through more than one grader’s hands and the flaws not be detected. As a result, the notes could be sold for an amount substantially higher than their true condition would justify. This in turn could eventually affect the integrity of the hobby.”
Keep one fact in mind-- the majority of the US Notes in question and being graded by the TPGS have an individual serial number on each one. Therefore it should be easy for collectors, dealers, and the TPGS to know which notes are being resubmitted for re-grading and which ones are subject to “grade inflation”, which isn’t the case with coins.
This impartial third party grading?
First and foremost coin grading is a subjective art form, not a science. This has been proven again by the test Coin Word conducted. We (MCM) believe that all serous Mexican coin collectors need to learn how to grade their selected series of coins on their own.
Second, we feel there is no reason for Mexican Coin Collectors to become embroiled in the current US Coin MS Wars. Unlike US numismatics, there aren’t thousands of Mint State examples of Mexican Republican coins in the market place every day of the week. And further more who cares if a Mexican coin is a MS-65 or MS-90? Unless of course you want to prey on collectors and coin investors who don’t know how to personally grade their own coins. A case in point is that most serous Mexican coin collectors soon discover it hard enough just finding a nice Extra Fine for some DAMs, let alone a coin that approaches Uncirculated or Mint State.
If the people (Early US Copper Collectors) who developed the 70 Point grading scale over 50 years ago can’t agree with the today’s Third Party Grading Services what makes you believe they can correctly grade Mexican coins they have never seen?
The only people who gain anything from all of this MS hype are the dealers and collectors who resubmit a coin dozens of times trying to elevate a coin’s grade from MS-63 to MS-67. It defies common sense that some TPGS are known for grading the same coin higher than another service, or themselves at an earlier date. This just proves that some collectors or investors are not really buying a coin, but the slab the coin resides in.
A number of years ago (sometime during 1997-98) I decided to stop my active collecting of Mexican Cap & Ray 8 Reales by varieties. I won’t bore you with all of the reasons why, but one was the lack of money. I wanted to shift my collecting goals to the Mexican Republic Gold 8 Escudos by variety after years of collecting this series primarily by DAM (Date/Assayer/Mintmark).
I had noticed a great number of 8 Escudos had entered the numismatic market since the mid-1990s and I decided that this was a perfect time to shift collecting gears. The then current market prices for 8 Escudos were ridiculously low when compared with Cap & Ray 8 Reales of comparable rarity and grade. What to do? I figured I would need a budget of approximately a half million dollars to accomplish my task of completing a collection of about 80% of the known varieties of the Republican 8 Escudos. I no longer kidded myself; I knew I would never complete a full set, I learned this lesson from collecting Cap & Ray 8 Reales.
I contacted my primary Mexican Coin Specialty dealer; I had spent hundreds of thousands of dollars buying coins from him over the years. I offered my entire collection (over 2,500 Cap & Ray 8 Reales) to him at a steep discount and with good terms for a one-time buy. He made it clear he wasn’t interested in my collection … at any price. Next I offered my collection intact to an auction house. We agreed I would send the auction firm several mints with my grades and reserve prices. After shipping off some of my best coins I received a phone call. My contact said my grading was out of line. We discussed several of the nicer and rarer coins I had sent, even coins I had bought from this auction house were now graded lower than they originally had been when I purchased them. But worse were the reserve prices the auction house wanted set on my coins. They were an average of 20% below wholesale, and I would need to pay a fee to set the reserve prices.
I thanked the auction house for their time and effort and asked them to ship my coins back. Quickly I decided this was not the time to sell my coins; the main reason was the JB Parker Collection had just come to public auction and the market was flooded with nice Mexican Cap & Ray 8 Reales.
I learned several important lessons from these experiences:
The Mexican Coin Market for Cap & Ray 8 Reales was VERY Shallow, not only were there very few DAM collectors; variety collectors were almost non-existent
Mexican Coin Grading was subjective; one grade was used to sell coins, a lower one used for buying them
I decided I had probably paid too much for many of my coins; even those purchased at public auctions; I was very high on the “A” Predator list for most Mexican Specialty Coin Dealers
I then decided to sell my Cap & Ray 8 Reales Collection piecemeal. I offered a few coins here and there that I knew were hot to different auction houses to see what type of terms were being offered. This plain worked to some extent. I quickly started building an 8 Escudo “war chest” so that I would have enough money to buy any “good” material that was offered to me by “private treaty” and those coins I needed showing up in public auctions.
But I missed my overall budget by a large margin; I found there were hundreds of unlisted varieties of 8 Escudos; just as there were Cap & Ray 8 Reales. By this time I was retired and had some time on my hands so I started buying old coin auction catalogs on eBay that weren’t in my reference library. I haunted eBay, night and day. Soon I had hundreds of sales and varieties previously unknown to me. I also had a much better grasp on grading Mexican Republic 8 Escudos than ever before from looking at all of the pictures in these many catalogs.
By the end of 1999 the “great” 8 Escudo market was starting to dry up; little did I know at the time that the Sotheby’s Gold Hoard of the 1990s had fueled this market. So I was able to buy almost every good coin that came on the market until about 2001 when my war chest started getting low.
One auction house I contacted during this time about selling more of my Cap & Ray 8 Reales wanted me to have all of my coins graded by a TPGS, even though I knew they couldn’t accurately grade my collection. This auction house when confronted with this problem had a good answer; “IF you and our cataloger can agree on the grade for your coins, I can assure you they will receive that grade. We have great pull with that grading service.”
This is impartial third party grading?
After this I went the offense and started trying to build a website.
Until late in 2005 the results of our expenditure of time, effort and money had mixed results. After so many frustrations we finally started hearing from collectors and “want-a-be-collectors” of Mexican coins from all over the globe. Many of these collectors were old timers, but some were “newbies” who were crossing over from US and other collecting disciplines.
Finally things were looking up! Not only were collectors beginning to share data about the coins, but also coins that they wanted to sell, buy, or trade. Soon we saw active trading; buying and selling of coins going on between our readers. As knowledge was spread as to what was rare; both in grade and overall, prices started moving up as competition for “good” material started to expand.
Now let us make it perfectly clear that MCM is only a small piece of this puzzle and not the only or main reason for the growth in the Mexican coin market. No, it is the Internet and sites such as eBay, Yahoo, Google and hundreds of others that are driving this surging market upswing. Sometimes in the past a collector might not see any nice Mexican coins at public auction but once a year. With the advent of daily auctions on eBay and Yahoo we began to see hundreds of new coins from many denominations each and every week.
While you can buy Mexican coins on hundreds of websites today, MCM is one place where you can gain knowledge about the coins, the mints, the people behind the coins and the history that makes collecting Mexican coins so interesting. You can find hundreds of high-resolution scans of coins, both common and rare that are unavailable anywhere else. You can ask questions that will hopefully be answered correctly by other collectors sharing your interests. You will read about and see new varieties as they are discovered. You will see what constitutes different styles of coins in all series as deemed by collectors, not catalogers. We will point out minting irregularities and errors we, and others find in all series of Mexican coins and then show you scans of the actual coins.
Hopefully you will be able to learn how to personally grade the coins that interest you. Dave Busse, one of our contributors, has already written an extensive grading primer (207- A Grading Primer for Mexican Coins) for beginners. Later we will tackle each series of Mexican Republic coins in much greater detail with grading tips for each mint and series of Republican coins, which will hopefully include high quality scans for each grade. This will allow each and every collector to build your own set of coin pictures to use as a grading reference. To the best of our knowledge the only other time this has been tried or accomplished is when Larry Hanks attempted to do this back in the 1970s in his two books. However, there will be one big difference; our scans will be in color and much larger than the actual coins so you can better study each one! And because they are digital images you will be able to scan your own collection to compare the whole coins, not just parts of them under a high-power glass or microscope.
Will everything be perfect? No! There will be individual styles, DAMs, and even mints for certain denominations where we will be unable to find almost Uncirculated or Mint State coins or sometimes even coins grading Extra Fine. But at least we will try. We will give you something that is unavailable today … a method whereby you can learn to grade your coins without going to an outside source.
We, MCM, believe that Third Party Grading of Mexican coins is not needed today, or ever. And Third Party Grading could become very detrimental to our hobby … if we allow TPGS to take over as the only legitimate source of grading for Mexican coins!
Mexican coin collecting is a hobby and not an industry! Therefore we believe this hobby should be controlled by the collectors within the hobby and not by some outside players. Mexican coin collecting will never reach the heights of the US numismatic market simply because there aren’t enough numbers (collectors or coins) to support it. There are far fewer Mint State Mexican coins and it is still very difficult to find many “key” coins in any grade, let alone high-grade coins. And just as the Early US Copper Collectors have done, we feel all collectors should learn to grade their own coins. This is completely possible-- if someone sets understandable grading standards that are supported by clear, enlarged, high quality photographs or scans for each series of Mexican coins. And this is our goal.