The Dwarf is encountered by Graham either in the field near the castle or in the cave that leads to the Land of the Clouds. The Dwarf will not kill you but he will steal some of your items. The items that he mostly steals are one of the three treasures that you obtained in your quest for Daventry. Once he steals them, you cannot get them back. The only option is to restore your game if he stole one of the treasures. The Dwarf cannot be defeated or killed, so the player must avoid him if he or she sees him. If Graham rubs the magic ring and becomes invisible, the Dwarf will run away.