This sentence from the exposition of O. Henry's poignant short story "The Gift of the Magi" is one which helps to establish mood. The color imagery of the "gray cat" on a "gray fence" in a "gray backyard" connotes gloom and despondency on the part of Della. For, as narrator O. Henry has indicated that Mr. James Dillingham Young has had more prosperous times in which he was paid thirty dollars per week; now, however, his salary has been cut by ten dollars, which is a substantial amount within the setting of this story which occurs place around the turn of the twentieth century.
Della is despondent because she has the meager amount of one dollar and eighty-seven cents with the next day being Christmas Day. With such a small amount of money, even after she has saved for months, Della cannot buy anything nice for her loving husband. So, when she looks out the window, nature assumes the color of her spirit as she views the scene of a cat walking on a backyard fence in the monochromatic shade of gray.
The sentence is used to accentuate the unfortunate circumstances of Della and Jim's situation. They were, essentially, almost penniless and had been forced to live in utterly drab and dreary conditions because Jim's already not-too-grand income of $30 per week had been decreased to $20 per week.
Della was quite distraught about their situation since all her scrimping and saving had only resulted in her accumulating the tiny sum of $1.87 with which she could buy her much beloved husband, Jim, a gift for Christmas Day, which would be the following day. She was tearful about the issue since she obviously believed that he deserved much more. It is obvious that the couple had already made a number of sacrifices to keep their heads above water but the fact that she would not be able to buy her husband a decent gift on such an important day seemed to be too overwhelming an idea for her to contemplate.
The reader has already been made aware of the couple's bleak setup and when Della "stood by the window and looked out dully at a gray cat walking a gray fence in a gray backyard" we are further reminded about how really dismal their prospects are. The repetition of the word "gray" emphasizes the point since the word refers to something dull and uninteresting, not much to look at—which is exactly where the Youngs find themselves.
The color gray is often described as "a color without color," which implies that there is no color in the couple's life. This, for Della, is especially heartrending since it is her dearest wish to bring some joy and color into her husband's life by buying him a wonderful present—a task that she, at the moment that she looks through the window, believes she cannot achieve.
The mood throughout the first few paragraphs of the story is, therefore, gloomy and somber. This is further supported by the use of "gray" and the contrast with Christmas Day, which is a day of joy, laughter, bright colors, and blessings, unlike the doom and gloom staring Della, literally and figuratively, in the face.
The setting of the story is based on a gloomy and dull atmosphere.Words such as 'gray cat','grayfence' and 'gray backyard' are used to maintain this atmosphere throughout the story.