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Proof, Uncirculated, and Bullion Coins – What You Need to Know
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Last Updated on: 5th January 2023, 02:20 pm
With inflation reaching the highest levels we’ve seen in 40 years, more people are taking an interest in gold and precious metals as a way of protecting themselves against the ravages of a depreciated dollar.
If you’re just getting started in coin collecting and precious metals investing, there’s a lot to learn. What is bullion? What’s the difference between a proof and an uncirculated coin? What is assaying? Why can I own a gold American Eagle coin in my IRA but not a South African Krugerrand?
Coin collecting and investing is easy to get into – and so deep and rich that you can spend a lifetime studying the subject.
But if you’re just entering the market, you should learn a few basics before you invest. Among the most important concepts to learn include:
- The differences between bullion, uncirculated, and proof coins;
- How proof coins are minted in the United States and what makes them special;
- What does “BU,” or “brilliant uncirculated” mean in the coin world?
- The Sheldon Scale and how coins are rated according to their condition and brilliance.
If you’re going to be a serious coin investor or collector, these concepts are important because differences between these types of coins, and between coins in fair vs. mint condition, can have a tremendous effect on their value… and on your pocketbook. In this article, we'll unpack each of these key points – especially the differences between proof and uncirculated coins.
What is Bullion?
The term bullion refers to gold, silver, platinum or palladium coins or bars that are manufactured primarily as a standard and easily-valued weight in precious metal. These products are bought and sold primarily for the investment value of the metal itself. While some bullion coins and bars are quite beautiful, their beauty, rarity, or commemorative qualities are a secondary concern.
As such, ordinary bullion is usually, but not always, a standard, off-the-shelf quality product.
In contrast, ‘proof’ coins and ‘uncirculated’ coins are both premium-quality coin products that are distinguished from ordinary circulation coins and from standard bullion products by their highly-polished appearance, exquisite craftmanship, mint quality at the time of production.
Both proof and uncirculated coins are frequently packaged and sold to collectors as commemorative or gift sets, directly from the U.S. Mint. They command a premium price compared to ordinary bullion coins of the same type, and are therefore not suitable for those who want to buy coins primarily for their precious metal content investment purposes.
In contrast, the U.S. Mint doesn’t sell its ordinary (non-proof) bullion products directly to the public. Instead, they sell these ordinary bullion coins wholesale to a network of authorized dealers around the country.
Note: The U.S. Mint makes and sells proof versions of bullion coins, as well, including the popular American Gold Eagle, American Silver Eagle, and the American Gold Buffalo. So just because a coin is a proof doesn’t mean it isn’t still bullion – and just because a coin is bullion doesn’t make it a proof. These are different concepts and independent categories.
Numismatic “Collector” Coins
|Bought and sold close to global ‘spot price’ for precious metals||Bought and sold according to collectors’ value, over and above value of precious metals||Precious metals sold at a premium to spot price.||Precious metals sold at a premium to spot price.|
|Usually not burnished||Usually not burnished unless uncirculated or proof||Burnished||Burnished|
|Struck once||Normally struck once||Struck once||Struck two or more times|
|Struck at 35-100 metric tons of pressure||Normally struck at 35-100 metric tons of pressure||Struck at up to 540 540 metric tons of pressure||Struck at up to 540 metric tons of pressure|
|May be suitable for IRAs||Not authorized for IRAs||May be allowed, but not normally suitable for IRAs due to premium pricing.||May be allowed, but not normally suitable for IRAs due to premium pricing.|
|Standard polishing. Normally no frosting.||May or may not have extra polishing||Extra polishing||Extra polishing and frosting for enhanced appearance/|
What is a “Proof” Coin?
Originally, ‘proof’ coins were the first few coins struck out of any set. Mint workers would perform multiple strikes to ensure every detail in the original engraving or die was imparted to the coin, and then carefully inspect the freshly-struck proofs for quality. The Mint would then retain early proofs for reference and quality control purposes, and compare later strikings of the coin to the proof sets.
In contrast to ordinary bullion coins, proof coins are premium products, typically made from specially-polished blanks or planchets (which have a raised rim). These planchets arrive at the Mint with a very high level of harness. So Mint workers must ‘soften’ up the metal so that it’s more malleable and responsive to burnishing and pressing – a process called annealing.
In the annealing process, these planchets are fed into an extremely high-temperature furnace.
Once the burnishing process is complete, the planchets are struck multiple times to give the raised engravings an especially high contrast with bold imagery. The flat “fields” are beautifully polished to create a lustrous, mirror-like appearance. Some versions have a ‘frosted’ appearance on the devices (raised elements) for more contrast. The Mint also makes “reverse” coins, which have a frosted field and unfrosted devices.
Proofs are not made to serve as ordinary currency in everyday transactions, and they are not distributed for circulation.
Today, the U.S. Mint and other mint facilities routinely make extra proof runs on newly-introduced coins. These are popular products among collectors, and the ones in good condition retain exceptional beauty and luster.
The U.S. Mint sells proofs in sets, which are a complete set of proof coins made in each denomination each year.
According to the National Gold Council, The first true U.S. Mint gold proofs known to be in existence are still preserved in the Smithsonian, an 1821 Quarter Eagle and Half Eagle. There are also earlier silver proof coins dating back to 1817.
Historically, proof coins were occasionally given as gifts by the U.S. government to foreign dignitaries. For example, the U.S. assembled a set of proof coins as a gift or the Sultan of Muscatine and the King of Siam in 1834.
The U.S. moved proof coin production to San Francisco from the Philadelphia mint in 1968. Proofs made since that move bear the “S” mint mark, for “San Francisco.”
San Francisco also made circulating coins at that time. However, circulated coins had no mint mark.
What is an “Uncirculated” Coin?
In the United States, the term “uncirculated” typically refers to a process of manufacture at the United States Mint facility where the coin is struck.
When the Mint makes an uncirculated coin, Mint workers hand load specially burnished rounds into the presses. However, unlike proof coins, which receive multiple presses, an uncirculated coin is typically pressed just once, though at a higher coining force.
Ordinary circulating coins are struck in hydraulic presses with a coining force of between 35 and 100 metric tons of pressure, depending on the type of coin and denomination. But proof and uncirculated coins are minted with a coining force of up to 540 tons of pressure.
Uncirculated and proof coins are also left under pressure long enough for added clarity and enhanced appearance.
Both special proof and uncirculated coins go through a special process called burnishing. This means the blanks or planchets get placed in a drum with cleaning and anti-tarnishing agents and are tumbled along with small metal pellets to further polish their surfaces.
When the tumbling process is complete, a Mint worker then washes them and dries them by hand.
The U.S. Mint doesn’t use the term “burnished,” though the collector community does. The U.S. Mint simply refers to these coins as “proof” or “uncirculated,” as the case may be.
What is a “BU” or “Brilliant Uncirculated” Coin?
A brilliant uncirculated coin, or “BU,” is a mint-condition coin that has never been placed in circulation as currency and maintains its original sheen, finish, and mint luster. These coins are sometimes referred to as “mint state.”
With a brilliant uncirculated coin, there should be no evidence of scratching or handling. All the coin’s raised design elements are still vivid and in bold relief. The mint “bloom” is still on the coins, and the luster is not worn away. The fields (backgrounds) are still smooth and mirror-like, with no scratches or dings.
In addition to BU coins, or basic uncirculated coins, you may encounter other descriptors, including “Almost Uncirculated” or “About Uncirculated” (AU). This term indicates that a coin has some small indicators of handling or wear. You may also hear the terms “Choice BU” or “Gem BU” to refer to the higher grades of uncirculated coins.
The terms brilliant uncirculated and “BU” to describe coins have fallen into disuse somewhat, superseded by the more up-to-date Sheldon coin grading scale.
What is the Sheldon Coin Grading Scale?
The Sheldon Scale is a system of quantifying the condition of coins, so that collectors, investors, and numismatists can more accurately appraise and price coins, and to make it easier to buy and sell them, with both buyers and sellers knowing the exact condition of any given coin, even sight unseen.
The system was developed in 1947 by Dr. William Sheldon and consists of 70 points, or grades. Prior to the Sheldon Scale, sellers advertised coins as “good,” “fair” “slightly worn,” or other imprecise descriptors that made it hard to transact business by phone or mail, without the buyer knowing exactly what to expect.
In 1934, Wayte Raymond, a coin dealer and researcher in New York City, published the Standard Catalogue of United States Coins and attempted to define terms like fine, very fine, proof, and uncirculated. This was an improvement, but was still not sufficient for serious numismatists.
The Sheldon Scale runs from a low grade of 1 (basal state, or poor) to a top grade of 70, denoting a perfect proof mint state coin. The modifier MS indicates a “mint state” coin that’s never been placed into circulation.
Using the Sheldon scale, today’s coin dealers and numismatists commonly assign uncirculated coins grades between MS60 and MS70, according to the following range:
Sheldon Scale Criteria for Mint State (MS) Uncirculated Coins
MS 60: Unattractive, dull or washed-out, mint luster typifies this coin. There may be many large detracting contact marks (bag nicks), or damage spots, but absolutely no trace of wear. There could be a heavy concentration of hairlines (minute scratches to a coin’s surface), or unattractive large areas of scuff-marks. Rim nicks may be present, and eye appeal is very poor. Copper coins may be dark, dull and spotted.
MS 61: Mint luster may be diminished or noticeably impaired, and the surface has clusters of small contact marks throughout. Hairlines could be very noticeable. Scuff-marks may show as unattractive patches on large areas or major features. Small rim nicks, striking or planchet defects may show, and the quality may be noticeably poor. Eye appeal is unattractive. Copper pieces will be generally dull, dark and possibly spotted.
MS62: Impaired or dull luster may be evident. Clusters of small marks may be present throughout with a few large marks or bag nicks in prime focal areas. Hairlines may be very noticeable. Large unattractive scuff-marks might be seen on major features. The strike, rim and planchet quality may be noticeably below average. Overall eye-appeal is generally acceptable. Copper coins will show a diminished color and tone.
MS 63: Mint luster may be slightly impaired. Numerous small contact marks, and a few scattered, heavy marks may be seen. Small hairlines are visible without magnification. Several detracting scuff marks or defects may be present throughout the design or in the fields. The general quality is average, but overall, the coin is rather attractive. Copper pieces may be darkened or dull.
MS64: Coin has good, overall average luster and even strike for the type. Several small contact marks in groups, as well as one or two moderately heavy marks may be present. One or two small patches of hairlines may show under low, (3-4x) magnification. Noticeable, light, scuff marks or defects may be seen within the design or in the field. Attractive overall quality with a pleasing eye appeal. Copper coins may be slightly dull.
MS65: Coin shows an attractive high quality of luster and strike for the date and originating mint. A few, small, scattered, contact marks, or two larger marks may be present, and one or two small patches of hairlines may show under (5x+) magnification. Noticeable, light, scuff marks may show on the highest points of the design features. Overall quality is above average and eye appeal is very pleasing. Copper coins have a full luster with original or darkened color.
MS66: Coin has above average quality of strike and full original mint luster, with no more than two or three minor, but noticeable, contact marks. A few very light hairlines may show under (6x+) magnification, or there may be one or two light, scuff marks showing on frosted surfaces or in the field. The eye appeal must be above average and very pleasing for the date and originating mint. Copper coins display full original or lightly toned color.
MS67: Coin has a sharp strike with full, original luster, May have three or four very small contact marks and a single, more noticeable, but not detracting mark. On comparable coins, one or two small single hairlines may show under (6x+) magnification, or one or two partially hidden scuff marks or flaws may be present. Eye appeal is exceptional. Copper coins have lustrous original color.
MS68: Coin has a sharp strike with full, original luster, May have three or four very small contact marks and a single, more noticeable, but not detracting mark. On comparable coins, one or two small single hairlines may show under (6x+) magnification, or one or two partially hidden scuff marks or flaws may be present. Eye appeal is exceptional. Copper coins have lustrous original color.
MS68: Coin has a sharp strike with full original luster, with no more than four, lightly-scattered, contact marks or flaws. No hairlines or scuff marks show. Copper coins have lustrous original color. Eye appeal is exceptional.
MS69: Coin has a sharp strike with full original luster, with no more than two small non-detracting contact marks or flaws. No hairlines or scuff marks are visible. Eye appeal is exceptional.
MS70: The perfect coin, as minted. Has no trace of wear, handling, scratches or contact with other coins from a (5x) magnification. Coins in this grade are almost non-existent in older coins with very few examples known. Copper coins are bright with full original color and luster. Eye appeal is exceptional.
Proof coins are assigned a grade code of PR. Otherwise, the criteria for assigning them Sheldon grades generally mirror those used for assessing uncirculated coins.
Proofs with a grade of 63 or better are sometimes referred to as “choice proofs;” proofs that are in grades 62 and below are sometimes called “impaired proofs.”
How Proof Coins Are Minted
Coin dies are the steel pieces that bear the reverse (negative) image of the coins to be minted. Each side of each coin is made by placing the blanks or planchets between the two separate dies, and then applying high-tonnage pressure to imprint the image on the coins. Coins are pressed, not cut.
The U.S. Mint applies some special processes to create a vivid, ‘frosted’ appearance to its proof coin products. The ‘frosting’ means the raised images have a lighter ‘frosted’ look, in contrast to the richly-polished, mirror-like background.
The mint also makes reverse-frosted coins, as well. To accomplish this, the dies – the metal “stamps” that press the coin’s image into the planchet, receive special treatment.
In addition, certain features of some U.S. Mint proof coins may receive additional polishing and frosting of specific design elements. The precise procedures vary at different U.S. Mint facilities:
In San Francisco, they apply tape to areas on the dies that they don’t want polished. The rest of the die are covered with diamond paste that acts as an abrasive. From there, the dies are fed into a machine that gives them an initial polish. A U.S. Mint employee then finishes the polishing by hand.
If parts of the dies are to impart a frosted texture to the coins, the Mint will use laser-cutting technology to cut tiny holes in the appropriate areas of the die.
After the polishing and laser cutting process is complete, the dies are brought to a ‘clean room’ and plated with a thin layer of chrome, via a process called physical vapor deposition (PVD). This process helps improve the die metal’s hardness, reduce oxidation, and reduce wear and tear during the minting process.
In the Philadelphia mint, employees cover the die with a piece of clear tape, then painstakingly manually cut out the relevant portions of the tape with a microscope and an X-Acto knife.
From there, the dies are further polished using three different grades of an abrasive diamond dust compound polish and a hand rotary sander. The hand polishing process for each die generally takes between 1 and 3 hours. The entire surface of the proof die is sandblasted using a special high-pressure industrial sandblasting machine.
Again, like the San Francisco Mint, the Philadelphia Mint completes the die-making process by bringing them to a clean Physical Vapor Deposition room and covering the die with a thin layer of chrome.
In recent years, workers at the Philadelphia Mint developed new technologies they use for polishing and frosting certain coins. For years, numismatists had observed that traditional frosting and minting methods could unintentionally erode design elements.
The new techniques debuted in 2013 on new proof 5-Star General $5 gold and silver dollars and the enhanced uncirculated Silver Eagles to great effect. Since then, the newer methodology has been widely applied to new coin issues, bringing greater beauty and contrast to more recent runs of proof and uncirculated coins from this mint.
Packaging and Distribution
The U.S. Mint then packages proof and uncirculated coins in sets and sells them as commemorative or collectors sets, rather than as investment vehicles. The coins are never placed in “circulation;” Uncirculated coins purchased from the U.S. Mint directly typically retain their packaging and certificates of authorization.
Once the minting process is complete, the Mint then starts the packaging process. Ordinary bullion coins are packed in 500-coin “monster boxes” and shipped off to a network of authorized dealers around the country.
Print and uncirculated coins, on the other hand, are packed in commemorative packaging, and sold directly to consumers on the U.S. Mint website.
Tips For New Precious Metal Coin Investors
Commemorative Coin Surcharges
By law, the U.S. Mint adds a surcharge to commemorative coins purchased directly from the Mint. This surcharge goes to a designated museum, charity, or public works project. For example, U.S. Capitol Visitor Center commemorative coins helped pay for a new visitor center under the U.S. Capitol’s East Plaza.
These causes may be laudable. But they take a chunk out of your investment returns. So if you are primarily buying coins for their investment value, this is another strike against commemorative coins or proof sets purchased from the Mint, and in favor of owning ordinary bullion products.
Don’t Pay Unnecessary Premiums
Generally, proof and uncirculated precious metal coins trade at a premium to their spot price. The smaller the coin, the greater bit the premium takes out of your wallet. You don’t get any extra gold, silver, platinum, or palladium when you pay a premium to the seller. You just pay more money.
Avoid Gold Coin/Precious Metal Scams
While most coin dealers are legitimate, there are still a few unscrupulous people out there who will misrepresent coin conditions to unwary consumers. They may ship coins in packaging that hides blemishes in the side of a coin, for example – or tell you you’re getting an MS-67 coin while actually shipping you one in MS-62 condition or worse, confident that most ordinary consumers won’t know the difference.
The difference in coin quality could mean a difference of hundreds of dollars on any given precious metal coin.
Meanwhile, even if you do get exactly the coin you expect and paid for from the dealer (which is the case for the vast majority of coin dealers) it might be difficult for you to recover the extra premium you paid for getting a proof or uncirculated coin.
Don't Try to Store Your Coins at Home
Many people choose to own gold, silver, palladium, or platinum coins in their IRAs and other tax-advantaged accounts. However, the law prohibits IRA owners from taking personal possession of the precious metals held in the name of their IRAs.
Instead, your IRA assets must remain in the physical possession of your IRA custodian – typically contracted with a third-party vaulting or depository service.
This means so-called “home storage” schemes, where you can store your IRA gold and precious metals in your home safe or even your bank’s safe deposit box are illegal, as the Courts have recently reaffirmed.
If you are buying coins for your IRA, always buy them via an authorized coin dealer that has an arrangement with an IRS-designated custodian, and have the coins delivered to that custodian, and not to you, personally.
Otherwise, you will be committing a prohibited transaction, and the IRS may disallow your entire IRA, and force you to take an immediate distribution and assess severe tax and other penalties.
You can hold as much gold and precious metals as you like in your own name in your home safe. But don’t try to hold IRA assets in your own personal possession.
Focus Your Investing on Bullion
For these reasons, most new investors interested in precious metals should concentrate on buying ordinary bullion forms of gold, silver, platinum, or palladium coins from reputable dealers. Normally, ordinary bullion trades reasonably close to the global spot price for that precious metal per troy ounce. As long as you focus on bullion, the global spot price is very easy to find, and It’s very difficult for an unscrupulous dealer to overcharge you.
Conversely, if you stick to ordinary bullion for your precious metals investment, rather than proofs, uncirculated coins, or collectibles, you can be confident you can sell it for close to the spot price at the time you sell it.
Bullion coins and bars are a great way for novice investors to gain exposure to gold, silver, platinum, and palladium as commodities. Paying a premium price to own gold offers no expected advantage for ordinary retailer investors.
Some of the more popular bullion coins that are allowable in IRAs include the American Gold Eagle, the Silver Eagle, American Gold Buffalos, Canadian Maple Leafs, and Austrian Gold Philharmonics. The proof, uncirculated and collectibles market are best left to experienced investors.
Who Should Own Proofs, Uncirculated Coins, and Collectibles?
We’ve established that if you’re primarily interested in precious metal coins for their investment value, and you’re not an expert who has a market advantage in buying and selling premium coins, you’d probably be smart to stick with ordinary bullion and avoid the premium products like collectibles, proofs, and uncirculated coins.
That doesn’t mean proofs and uncirculated coins don’t have their place. The best reason to own proofs, uncirculated coins, and collectibles are these:
- Love of the beauty and craftsmanship of proof coins.
- To commemorate a special or memorable occasion.
- To own a piece of history that can be a treasured family heirloom.
- To give a proof or commemorative set as a gift.
- Because you love the hobby.
Where to Learn More
With precious metals investing and coin investing, there’s a lot to learn – especially if you want to dabble in areas besides owning straight bullion.
You can also find reliable basic consumer information via the Commodity Futures Trading Commission,
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