One Numismatist's Experience With The Toning Premium
This topic was originally inspired by discussions regarding the ANA Summer Course, and by questions that touch upon the weight given to toning in relation to a coin's overall grade. This topic also appears to come up in discussions quite often and the framing of the statements or questions suggests many times that the author has a particular distaste or misunderstanding of this niche market. Monster toning is a numismatic hot button that has been the center of discussion, debate and argument. Often, the questions or statements are rhetorical, usually debates are impassioned and occasionally the arguments put forth may even be logical. Keeping the former in mind, and using the previously mentioned discussions and questions as a backdrop, I would like to state why, in my opinion, we see an "additional" premium on toning.
First, some parameters are required as background to the current premise. This is about the type of toning that makes people say a coin is attractive without regard to marks, hits or nicks; the type of toning that makes people ignore the grade of a coin; the type of toning that elicits a strong urge to possess the piece. In essence, the type of toning that makes people pause when looking at coins and that veritably drags out a response based more on emotion than on reason. Unfortunately, although I own many “monster toned” coins, I have precious few images suitable for inclusion in this thread. Therefore, the thread will be populated with images of coins that I own, and that will hopefully serve to illustrate some of the points to be written about.
Toning of this caliber is not the norm. In my estimation, based upon years of specializing in this numismatic niche, I would say that close to 80% of toning on coins is both grade and eye appeal neutral, while the balance is split between attractive and unattractive. Of the 10% delegated to the attractive pool, I would further state that extremely attractive pieces make up perhaps 1-2% and only a very small percentage, on the order of 0.05%, are true monsters. Additionally, please note that this thread is not about how the grading services grade toned coins or the relative weight that they give to such a subjective topic, which could truly encompass a chapter of a book.
The first edition of the PCGS Grading Guide states that marks, luster, strike, toning and eye appeal are the criteria used for grading, however, I do not recall a precise breakdown of weight per attribute explained in the guide. In the third edition of Scott Travers' book The Coin Collector's Survival Manual the author gives a precise table that purports to be the method used by PCGS and NGC to grade coins. I find the table bulky and cumbersome for real world grading and doubt that the services actually use such a formalized method. They most likely use a reckoning system based on their considerable experience, and the rigid table cut-offs serve only loosely as a guide for coins with a particularly low-end attribute. The Travers book gives only four criteria for grading. Presumably, the component of grade for eye appeal would include any toning factors in this format.
Currently, a shared conundrum faced by many numismatists is that very attractively toned coins may receive a boost in their TPG-assigned grade because of their toning. However, upon sale of the coin, a surcharge on top of the TPG-assigned grade takes residence in the price. The rationale for this surcharge is that the coin in question has superior eye appeal. Therefore, the coin has received a premium for toning by both the TPG and the seller. In this case, there are at least three discrete steps in the grading and pricing algorithm, while ignoring the greed possibly found in any numismatic deal.
The first is that the grading step performed by the TPG is an initial, independent estimation of the coin's properties. That is, the graders are looking at the coin and their assigned grade reflects that this coin, on balance, is an MS66 (or whatever grade) in their opinion. Granted, a wonderfully toned coin can boost an otherwise MS65 to an MS66 grade, and can even boost an otherwise MS64 to an MS66 grade. Therefore, the subjective component of the desirability of toning is already resident in the TPG-assigned grade. This does two things; it gives the component grade in the abstract and helps to nail down the price to a certain generic, predetermined range in a concrete manner.
The statement that an MS64 can get a boost to MS66 because of toning is in contrast to what some instructors at the ANA Summer Course state, who infer that "great toning can add a point to the slabbed grade" and that wonderful reverse toning can do little to help a grade. In the real world, it can add more than a single point to the TPG-assigned grade. Reconciliation of this apparent dispute occurs by acceptance that 15-20% of coins are "liners", according to the instructors, and that the precision and accuracy of human graders is finite, which allows a two-point upswing due to eye appeal. What is not consistent, however, is a statement made by an instructor that "the color was so good it was worth two points" in relation to a WLH with supposedly knockout color. I do not want to get into the minutia of what the instructors said because what they said may not have been exactly what they meant and, even if it were; how I interpret these statements might not be. The assertion that the reverse of a coin can do little to raise the final grade does not always hold true. An example is a 1952-S Washington quarter that has an obverse no better than MS64, yet resides in a PCGS MS66 holder because of its awesome reverse toning.
The second discrete step to a beautifully toned coin's price is relative demand for the coin. This is not the same as demand for the particular issue, such as the well-known demand for 1909-S VDB Lincoln cents; rather, this is demand for the eye appeal caused by the toning. Attractively toned coins are extremely limited in numbers, but the pool of willing buyers is relatively large. The pool of willing buyers is also apparently expanding rapidly with the advent of high quality images on the internet. This leads to willing, aggressive buyers chasing these few pieces. This is similar to the 1909-S VDB Lincoln cent in that even though it is far more common in MS grades than many other early Lincolns it still sells for more money than its more scarce counterparts because of inordinately high demand. The demand is not only greater but it is more consistent.
The final component is essentially two-fold and this is the ability to find a replacement combined with that replacement's cost. It is one thing to have a high demand coin such as the 1909-S VDB Lincoln cent, where one may sell a piece and then find another relatively quickly and with minimal effort. In those cases, you can be certain there will be a supply of coins as long as you are willing to pay a more or less well established market price. It is an entirely different thing when you do not know when or where you will find the next monster coin for sale and, even if you are fortunate enough to find one or more, what the cost level will be to acquire them. Five times Greysheet bid is not unheard of and even fifty times bid is a bargain at times. The lack of certainty in replacement and cost makes this niche market less predictable.
In short, the boost to the coin's grade for superb toning is in one respect simply a reflection of the attributes of the coin. As such, it should not hold sway over other individual criteria. Even if the previous view is rejected, the idea that the price differential of a one-grade boost should, in general, be appropriate compensation for a very high demand item that also has extremely unpredictable cost structure and availability might not be universally accepted. In these cases, the grade lays a very basic framework and the market's demand, personified by the individual numismatist, serves to drive the final price higher when viewed in the context of uncertain supply and cost. As always, buy what you like with money you can afford to lose.