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You can earn this by completing the main quest The Elf, The Nab-Sack, and the Loom.

You will unlock the magical loom conjuration and can use materials farmed from magical beasts you have tamed to upgrade your equipment here.

Note: I disregarded the loom for a large part of the game - however, fully upgrading gear and slotting in damage traits really does make a difference to your damage output.