As the diamond market returns to normal following the post-Christmas lull, attention is turning to the outcome of the holiday season.

December began with US retailers continuing to express a finicky appetite for inventory ahead of the holiday. That apprehension appeared warranted as the outcome of holiday diamond buying was generally lackluster, especially considering the markdowns that many retailers made to encourage purchases.

Thus, the holiday season fell in line with the rest of the year, which was characterized by weakness.

According to the RapNet Index, polished prices closed the year in the red, with 1-carat diamonds being the biggest loser, down over 12.5 percent. 3-carat diamonds were down 11.6 percent, 0.5-carat diamonds were down 11.1 percent and 0.3-carat diamonds declined 7.4 percent for the year.

Bloomberg reported a 16-percent decline in rough diamond prices for 2012.

The rough diamond market remains weak globally and manufacturing in India is still below capacity.

In the polished market, demand remains steady for fancy diamonds, especially smaller sizes. There continues to be a healthy appetite for lower-quality goods, with tight supply being reported for SI and lower-quality diamonds.

China shows signs of economic improvement ahead of Chinese New Year, and that is boosting optimism about demand in that market. Though focus has started to shift to that event, retailers in that market are showing a reluctance to build inventory.

There were concerns that automatic tax increases related to the fiscal cliff could negatively impact diamond demand. Though the US government managed a deal, it still involves tax increases, most notably on higher-income households. Therefore, concerns remain about the impact on luxury spending in 2013.