...I get the distinct feeling that I'm missing something here.

Base +7, lapidibus +14, ElecDrago -8, Fofotron +6

me too...
Somehow i get the feeling that the goldfish symbolic. it may have to due with the fact that it needs a special water to live

'it can no loner live in water from the outside'

since Gensokyo is a world closed off from the real world, it could be a metaphor from what yukari did for the survival of magical beings.
in other words he was trying to provoke yukari into a fight. Yukari dismiss, telling chen that she can eat it. Ran however fell for it.
the old man wanted yukari to kill him, instead of wasting away

that's just my theory by the way

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The conversation was more barbed in the Japanese even though it is the right translation there's just a missing feel to it.

Base +14, Anonyslime +7, janusi +12, Fofotron +6

Poor Goldfish

"Oh god, I'm going to die here."

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P. 34 lol, pillow treatment

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This is my take on the story:

Youkai and other fantastic creatures were all doomed to be wiped out due to lack of faith or belief in their existence in the outside world, but Yukari offered Gensokyo to them as a means of survival - the supreme "bait". However,Yukari only brought them in as puppets for her little sandbox, and implied that the sandbox, for Reimu. The youkai are now trapped, because if they do anything to upset the "balance" of Gensokyo, they are exterminated, and they can no longer exist in the outside world since belief about them has all but dissipated. Basically, they've given up their freedom to be chained to the role they've been given in Yukari's little sandbox. They are now like the goldfish, imprisoned in a bowl, yet unable to leave it.

Therefore the old youkai came to insult Yukari through the symbolic goldfish and for her to kill him in a "glorious battle". While there probably would have been other options, such as suicide, or causing havoc and then being exterminated by the shrine maiden, neither would have been enough to quench his broken pride. Especially by being wiped out by Yukari's pet human. Dying by Yukari's hands would mean that he could die delighting in Yukari's hypocrisy, in disillusionment of the facade that she is some messiah-type saviour, but rather some brat who would kill them without hesitation if they became an eyesore - just likt the rest of them.

Yukari doesn't take the bait, but Ran does, which is enough for the old youkai considering Ran is basically Yukari's substitute. The ending is the most disturbing perhaps, showing that the goldfish will be discarded, or "eaten", upon a whim, when the moment is "just right". The irony of the situation, considering its symbolism, causing Yukari to laugh.

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My interpretation on Yukari's laughter is slightly different though.
After goldfish/human turned out to be such a success (in Gensokyo), hence the turning fat, a youkai said they wanted to eat it. Goldfish are rarely eaten and is not considered part of the main diet. The humans in Gensokyo were never brought there to be eaten and under the contract are strictly forbidden from being eaten. The thought of eating the goldfish/humans was ludicrous to Yukari and so caused her to laugh.
The goldfish was probably given to mock Yukari. This 'delicious food is right there and you won't touch it. Are you really youkai?'
After all, the notion of being trapped in Gensokyo isn't true and in my opinion is simply rambling and deep seated hatred. Being exterminated no longer held the same meaning as it did before. And youkai could enter and leave on whim. The netherworld, moon, etc. aren't "Gensokyo". There are plenty of other places where youkai could exist besides the 'Outside'.

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