The Goblin settlement can be found in the ruins east of the Observatory, and is home to a number of named Goblins. During the Observatory Quest, the Observatory professor tells the player that the goblins have been causing trouble in the region, and have stolen parts from the Observatory.
The goblin settlement also has one of the entrances to the Observatory Dungeon, which is similarly overrun by goblins.
There is a hard Treasure Trails map clue for the area, in which the player must search the crate near the dungeon entrance in order to progress the clue.
The entrance to the Observatory Dungeon.
The Treasure Trails map clue for the settlement crate.