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GW2 Wiki
The Mystic Forge is located in the center of Lion's Arch's Mystic Plaza, not far from Trader's Forum waypoint. This strange forge holds the imprisoned djinn Zommoros, who hails from distant Elona.
If you offer the Mystic Forge four gifts (like unneeded items and weapons), you will receive a gift in return.
The Mystic Forge uses a combination of random and non-random recipes. For example, throw four rare swords into the forge, it will return a random sword with a chance for that sword to be substantially better. There are also specific items that can be created by throwing four very specific items into the forge with no randomness involved at all.