We are seeing a surge in the number of people we talk to that have purchased certified American Eagles and other types of certified modern coins for prices that don’t reflect the value of these ordinary bullion coins. Please read this as a warning against being ripped off.
Older coins, especially those that have been circulated when our country was using gold and silver as currency, have been going through considerable wear while they were being used. Just think of the condition of the last $20 bill you had in your wallet compared to its condition when it was printed.For obvious reasons, collectors will attribute greater value to the coins that are in better shape. Hence, a grading or quality scale was created years ago, the Sheldon scale, which grades coins on a scale from 1 to 70, with 70 being a perfect coin and 1 being a coin in a very poor condition.
Grading makes sense—for old coins
The grading level is often used to determine the price of the coin. Years ago, there was a practice of overgrading a coin by the dealer that sold it, which means the coin will sell for more than it is worth, and the buyer will incur a loss when they resell the coin.
To avoid the fraudulent practice of overgrading coins, two grading services—PCGS and NGC—were established in the mid-1980s. They don’t sell or buy coins. They just grade coins for a fee. Because of their accepted objectivity, they have become so integral to coin collecting that even experienced coin dealers will submit coins to one of the services for their stamp of approval.
In other words, it makes sense to submit coins that were once in circulation to one of the grading services—they are supposed to be unbiased, which is validated by their wide acceptance.
PCGS and NGC are now certifying modern coins
However, we are witnessing a widespread scam of promoting modern gold and silver bullion coins—and PCGS and NGC are assisting indirectly in the scam. This is not a problem for coin collectors, but it is for new investors who fall victim to the scam and it’s a problem for the entire industry. The two grading services helped stamp out one crooked practice of “overgrading”, and they are implicit in another.
PCGS and NGC charge fees for their services, and the more coins they certify, the higher their earnings. The core of the problem is that in their pursuit to grow their profits, the two companies now also certify modern coins—such as the American Eagle—which causes some buyers and investors to falsely believe that the certification adds value to these coins.
Just to be clear. Bullion coins like American Eagles can be a great investment, but certifying them does not increase their value by even one cent.
How the scam works
Unscrupulous dealers who promote certified modern coins will do the following:
- Buy a new coin like a Gold American Eagle or a Proof Gold American Eagle from a mint.
- Send the coin with a small fee to a grading service to be certified. Since the coin is brand-new and in perfect condition, it will come back as MS70 or PR70, the highest quality grade possible.
- Show the coin to a new client as an MS70 at an inflated price and compare it to a 150-year-old coin at a slightly higher price that is rated MS64 while saying, “You are getting a perfect coin at a lower price than a coin of a much lower quality” or “Since an MS64 old coin can be worth hundreds of thousands of dollars, just imagine what your coin will be worth in a few years at MS70?!”
- Sell the certified coin to the client.
Here’s why this is unethical. You cannot compare a new coin to an old coin this way. New coins like Gold Eagles and Silver Eagles have never been circulated, so they show absolutely no wear. Therefore, almost all these coins are rated as MS69 or MS70.
It’s worth to note that certifying modern proof coins actually takes them down in value. Modern Proof coins have additional value to their bullion value, from the box and authenticity document issued with them by the US mint. In the certification process detailed above, the box and authenticity document are being tossed away, actually stripping the Proof coin from the additional value it had, since it does not have any collectible value as a graded and certified coin. Certifying a Proof American eagle modern coin has actually turned it to a regular bullion coin that looks nicer than a regular American Eagle but has no additional value when selling it back to a dealer.
A few certified modern coins have been sold at prices above market value on eBay—but eBay doesn’t reflect the real world. Many eBay buyers are unknowledgeable, and sometimes auctions go at higher prices than justified. However, when a buyer of these certified modern coins needs to sell it back to a dealer, he will only be paid the same price as if he sold regular uncertified bullion.
PCGS and NGC should stop this practice and kill this scam.
Certified modern coins have no added value due to one simple reason: more than 10 million 1-oz Gold Eagles and over 128 million Silver Eagles have been minted. With that many coins on the market, most of which would be graded at MS69 or MS70, they are of no interest whatsoever to actual coin collectors.
By grading these coins, PCGS and NGC are participating in the scam. Their executives know what’s going on. They should refrain from lending their credibility to promoters of certified modern coins. Unwary buyers don’t deserve to be scammed.