Sounds like he's a "whole language" reader. I think you're right, he probably doesn't use decoding skills in his reading.
Unfortunately, he's likely to be pretty resistant to learning that (to him, secondary) skill set by the time it is officially taught to most kindergarten and first grade students.
You're also right to be wondering about the necessity of teaching those skills now, IMO.
This is the entire reason why we intervened and (against professional advice of a family member) taught our preschooler to read. Well, I say "taught." Not really. We just got her a set of phonetically controlled readers and went through them with her for a couple of weeks.
The problem with whole language readers is that they can have difficulty with other peripheral literacy skills such as spelling, foreign language acquisition, etc. later on, and the problem with gifted children in particular is that once they know a way to do something, they are VERY resistant to instruction which 'remediates' something that they don't see as a problem. This is why we did NOT want our DD to begin reading fluently using this particular method. Not like other parents necessarily have a choice, I know.
I'd probably provide a few at-home resources to work on that other skill set (workbooks or starfall, etc. just what he likes and enjoys doing)-- and maybe see what he can do with words that you KNOW he's not seen/learned in context. If he can reason out words that he's very unlikely to have ever seen before, then it's likely that he's using some kind of decoding skill set.
