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The family and Billy sit down to supper with Gitano. Carl Tiflin continues to emphasize that Gitano must leave in the morning, and after dinner the old man quietly leaves for his room in the bunkhouse. Carl and Billy discuss the paisanos, the old Mexican countrymen, and Billy stands up for them, saying "They're damn good men." Jody, meanwhile, contemplates Gitano, associating him with the mysterious mountains. He creeps over to the bunkhouse, where he finds Gitano polishing a brilliant, ancient rapier. Gitano is very protective of it, and Jody leaves, knowing that he must never tell anyone about the rapier.
The next morning, Gitano is gone, but his bag is still in the bunkhouse. Later that day, a local farmer rides up, asking Jody's father whether he had sold Easter. He explains that early in the morning he saw an old man riding straight up through the bush, on Easter with no saddle, holding something in his hand that looked like a gun. Jody's father remarks that he is not surprised the old man stole the horse. Jody, on the other hand, is seized by a vision of Gitano riding up through the mountains toward the ocean, gleaming rapier in hand. Jody is seized by longing and sorrow, and goes down to the bush where he lays down for a long time, possessed by a mysterious sorrow.
Gitano came to the ranch looking for a meaningful way to close his life. He decides to end it heroically, by plunging into the wilderness with a horse and a sword. This is the second time in the The Red Pony that something has wandered into the wilderness to die, the first being the miserable Gabilan. As before, Jody has a highly emotional reaction, but this time it is because he understands what Gitano is doing, even if his father does not. This story shows resolutely that Jody has more imagination than his father, more of an ability to connect with and revere the heroic ideal Gitano represents. This is a theme continued in the last story, "The Leader of the People." However, once again, there is no evidence that Jody's vision of things is the correct vision; it is possible that Gitano stole the horse simply because he needed the horse. Jody is certainly more imaginative than his father, but he is not necessarily more correct.
The word "Gitano" means gypsy in Spanish. In many ways, Gitano is much more than a misunderstood symbol of the old, romantic west. He is also representative of a dispossessed race, as the Mexicans slowly lost the West to ever encroaching America. Carl's prejudices against this race is evident in his remarks about the paisanos. Billy Buck, in contrast, is sympathetic with the paisanos. He defends them on the grounds of their ability to do hard work; ignoring race completely. Although Billy's argument has merit, it is impossible to discount the fact of race in the issue of land in the American West. Carl and his family have the land for the simple reason that they are not Mexican and not Native American; Jody's love for the land is not any less for this fact being true. In this story, the theme of land becomes tied up with the theme of dispossession, in turn leading to a deeper question of who the land belongs to, and whether such a question can ever be answered. Does it belong to Gitano, who was born on this land, and whose family lived there? Or does it belong to Jody, who was also born on the land, and whose family also lived there? Once again, the moral questions raised by the story far outdistance Jody's conception of them.
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