Can be found in North Caelid: Greyoll’s Dragonbarrow, Fort Faroth. See How to get to North of Caelid. When entering the Fort you will see it behind the wooden wall. Use the ladder to get to the roof and drop into the last hole there (not the first one). After dropping down you get attacked by a blue ghost. After this move forward to where the bats are, but instead of dropping down you’ll want to jump to the ledge on the right, leading you to this item.