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The Blue Diamond is a resource that spawns in the backpack of Grandmaster miners. There is no special place to mine for this, any location that yeilds ore can spawn a resource gem. The Blue Diamond, among others, is an ingredient required to craft the following items:

Arcane Circle Resilient Bracer Longbow of Might True Spellblade

Gemmed Circlet Guardian Axe Mage's Runeblade Silver-Etched Mace True Leafblade