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Purple dye is used to color capes and goblin mail purple. It is required in the Land of the Goblins quest in which players need to make purple goblin mail.
Purple dye is obtained by combining red dye with blue dye. It can also be purchased after completion of Mourning's End Part I from Oronwen at the Lletya Seamstress which stocks 10 purple dyes and sells them for 6 coins each.