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.