China takes over the gold market. Since Thursday, Shanghai's new gold futures exchange has added fresh fuel to the gold bull, pushing prices to new all-time highs since trading began. The most active contract touched its daily 10% limit and forward prices indicate a strong expectation that gold will jump the $1,000 barrier soon. Do not underestimate this new, bullish, market force. The Chinese have a much more conservative attitude towards gold, honoring its role as the only asset that's not somebody else's obligation.

From The Hong Kong Standard:

    China's first gold futures contract surged by its 10 percent daily limit on trading debut - on a day that the spot price of gold hit a record US$891 (HK$6,949.80) an ounce on the back of a weak dollar and inflation concerns.

    Contracts for June delivery hit US$988 an ounce in Shanghai.
    Spot gold hit US$891 in London afternoon trade yesterday, surpassing the previous high of US$881.10 reached on Tuesday.

    Gold for June delivery, the most active contract in Shanghai, rose as much as 21 yuan (HK$22.53) to 230.99 yuan a gram, or nearly US$100, leading to the belief the metal may reach US$1,000 an ounce.
    Trading was heavy yesterday with more than 120,000 contracts exchanged and 21,810 still outstanding.

    As the third-largest consumer of gold, China has made clear its intention to gain stronger bargaining power through setting up a futures market.

    However, prices are expected to be pushed up further with the addition of a new trading center and more demand within the country, a spokesperson at the Chinese Gold and Silver Exchange Society said.

    The start of futures trading in Shanghai is one of the biggest events in the gold market over past few years, which also saw the launch of gold exchange- traded funds.

    "Futures will allow leveraged investment in gold from Chinese investors and speculators," wrote John Reade, a London-based metals analyst at UBS. It is expected that Chinese gold producers will use the market to hedge low-cost exposure to the metal while investors will leverage their holdings to bullion.

    China is the world's second-largest gold supplier, producing 191.456 tonnes during the first nine months of last year. Its manufacturing sector consumes about 9.2 percent of the world's total, according to Xinhua News Agency. The global gold price gained 31 percent in 2007 against the backdrop of a declining dollar and concern the United States would cut interest rates to avert a slowdown.

I don't think we will see a strong pullback in gold in the next 3 months.