The angry goblin reveals that it has been trapped in the box for over 50 years. As Merlin attempts to wrestle the creature back into the box, it disappears, transforming into a small sphere of glowing golden light, and escapes from the chamber. Merlin follows the goblin back out into the library and chases after it, but loses track of the creature. Merlin follows a trail of destruction into Arthur's chamber, which has been ransacked by the goblin. Arthur discovers him and demands an explanation for the mess, which Merlin claims is a result of his spring-cleaning. Spotting the goblin fleeing the chamber, Merlin runs after it. The creature roots through some jewellery but leaps from a nearby window to escape Merlin.
Later, Merlin identifies the goblin in one of Gaius's books. Gaius warns that the creature is mischievous and dangerous and will stop at nothing to get its hands on gold. Arthur enters and summons Gaius and Merlin to the king's chamber. The prince warns the pair not to laugh at Uther's condition. Entering Uther's chamber, the trio find him hiding behind a screen – completely bald. Gaius tells Merlin in secret that the king's hair-loss was likely caused by an enchantment cast by the goblin. Gaius devises a plan to trap the goblin, using gold to lure it in.
That night, Merlin removes a chest of gold coins from Arthur's chamber. While sneaking out, he knocks some crockery to the floor, waking the prince. Merlin uses magic to wrap the prince in his bedsheets and exits the room. Merlin and Gaius use a trail of gold coins to lure the goblin into their trap and attempt to capture it. However, the creature again transforms into golden light and enters the body of Gaius. The possessed Gaius then sends an oblivious Merlin away to find the goblin.
The Goblin-Gaius ransacks his chamber. When Merlin returns, Gaius blames the goblin for the mess and instructs Merlin to clean up. He decides to head to the local tavern, much to Merlin's confusion. At the tavern, Gaius spots two large men arm-wrestling for gold coins. He challenges the winner to a bout, which the old man wins with his goblin strength. He claims a bag of gold coins and licks his lips.
The next morning, a hungover Gaius orders a bemused Merlin to the market to fetch his breakfast. While he is gone, Morgana enters to request a draught from Gaius as she has been having trouble sleeping. The possessed Gaius mocks her, then tells her that he can see into her cold heart and that he knows her true feelings toward Uther. He casts a spell on the sleeping draught, then hands it over to a frustrated Morgana.
Later, Gaius tricks Camelot's peasants, including Gwen, into handing over their gold coins by lying about their illnesses and prescribing fake remedies. He also fools Uther with a useless concoction and slaps the king around the head, claiming that it will stimulate hair growth.
In Gaius's chamber, Merlin discovers his enchanted friend licking gold coins and realises that he has been possessed by the goblin. Merlin attempts to reason with the goblin, and threatens to kill him if he hurts Gaius. The goblin retorts that Merlin cannot hurt him without hurting the body of Gaius.
In the king's chamber, Arthur warns Uther of acts of vandalism around the castle. Suddenly the king, Morgana and Gwen all begin to break wind uncontrollably. Merlin later confronts Gaius and traps him in his chamber with magic. The goblin realises that Merlin is gifted and magically thrusts a dagger at him, which the wizard deflects. Unable to bring himself to hurt his mentor, Merlin vows to free Gaius from the goblin's control.
Merlin searches for Arthur, but when he finds the prince, he is promptly arrested. Merlin discovers that the goblin has blamed him for the problems affecting the court and presents the king with a book of spells. Merlin protests that Gaius has been possessed by a goblin, but is unable to prove his claims. The king orders that Merlin is to be killed. At the tavern, Gaius insults Sir Leon and spits beer in his face. He quickly apologises when the enraged knight challenges him to a battle and offers to buy him a drink. However, Gaius spikes the drink with a magical potion, which causes warts to grow on the faces of Camelot's knights.
Locked in a cell, Merlin uses magic to retrieve the keys from a sleeping guard. As an alarm sounds, Merlin flees the pursuing knights and takes refuge in Gwen's home. The next morning, he asks her to convince Arthur of Gaius's possession. Arthur invites Gaius to his chamber but becomes suspicious when the old man is cheered by news of Merlin's death sentence. He draws his sword, but the goblin uses magic to break a vase over Arthur's head, knocking the prince unconscious. When Gwen enters Arthur's chamber, she finds that Gaius has transformed the prince into a half-man, half-donkey creature.
Merlin discovers that if the host's body is dying then the goblin will be forced out. He exits in search of a lead-lined box, which will trap the goblin's spirit. Merlin sneaks back into the secret library chamber and retrieves the lead box that originally held the creature.
Later, he concocts a poison, pouring it over a chest of gold coins. Merlin tells Gwen that she must administer the antidote to Gaius once the goblin has left him. The pair hide as Gaius enters his chamber and licks one of the gold coins. The goblin's spirit leaves the dying Gaius, but flies near Gwen. She drops the antidote and it falls to the floor, becoming jumbled with a number of other potion bottles. The creature flies into Merlin's mouth and he spits it back into the lead box. Merlin and Gwen frantically search for the antidote, eventually administering what they believe is the right potion to Gaius. The old man awakens and is restored to full health.
Gaius informs Uther that Merlin is innocent and that he committed the recent crimes while possessed. The king pardons Merlin and orders that the goblin's lead box be sealed in the vaults. When Uther questions who could have released the goblin in the first place, Gaius lies, telling him that he has no idea. Later, Gwen encounters Arthur and the pair agree never to speak of the embarrassing events that have occurred. As Merlin and Gaius watch, Arthur trains for battle but begins to bray like a donkey. Merlin reveals that he has decided to leave the prince under the goblin's spell, just for one more day.
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