BEHIND the heavily fortified door of Stack’s Bowers, a gallery of rare coins in New York, smiling salesmen show off their precious wares neatly displayed in pristine glass cabinets. To the untutored eye, it looks like pocket change. Numismatists, who study the history and art of old money, see well-preserved coins as aesthetic masterpieces worth many times their face value. At an auction organised by Stack’s Bowers on March 31st, an American cent from 1793 (pictured) sold for $940,000, becoming the costliest penny ever.

An index of tangible alternative asset classes compiled by Knight Frank, a consultancy, shows that returns on rare coins over ten years to the end of 2016 were 195%, easily beating art (139%), stamps (133%), furniture (-31%) and the S&P 500 index (58%). Coins are more portable than paintings or furniture, and boast a higher value-to-volume ratio. Stamps may be lighter, but, come doomsday, cannot be melted down.

The rare-coin market, however, has long had a reputational problem. What distinguishes a highly valuable coin lustre, sharpness of detail, toning and friction-wear is imperceptible to the untrained eye. So shady coin-dealers for decades successfully duped investors into paying top dollar for non-premium or even counterfeit coins.

The market’s wild-west days ended in 1986 when the first independent coin certifier, the Professional Coin Grading Service (PCGS), based in California, established itself as an authority on authenticity and quality. Grading each coin on a one to 70 scale, PCGS gave the market transparency, boosting investor confidence and sales volumes. Today, global sales of rare coins are estimated at $5bn-8bn a year, with 85% of the market in America. So important has third-party grading become that almost all rare coins sold at auction these days have been graded and sealed in stickered plastic by either PCGS or its main rival, Numismatic Guaranty Corporation (NGC), which is based in Florida.

Some blame the grading system itself for the eye-watering returns. Investors cling to the assigned grade: even a one-point boost can double or even triple a coin’s retail price. An 1884 silver dollar from the San Francisco mint, for instance, sells for $19,500 at the 62 grade but surges to $65,000 at 63.

The grading process is subjective: the evaluation criteria include “eye appeal”. Scott Travers, a coin dealer in New York, says investors sometimes resubmit the same coin ten or 20 times to the same company in hope of an upgrade. All this led to a steady “grade inflation”, that has been cheered along by investors. But in the long term, a sustained rise by simple fiat in the number of high-grade coins will surely depress prices. Already, a new type of “grader of graders” has emerged, hoping to instil some discipline by rating the consistency of the two primary graders.

Very Truly Yours,