Knitted Scarf is a favored gift in Dragon Age: Origins - Awakening. It gives +10 approval (with diminishing returns) to Anders, and +5 approval (with diminishing returns) for any other companion.
Inside a crate labeled "Lost and Found" in the Chantry of Our Lady Redeemer in the City of Amaranthine.
In Kal'Hirol - Trade Quarter, Anders mentions taking up knitting during the cut scene at the Lyrium Bucket.
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Gifts can be sold to a merchant or given to certain party members to influence their approval rating.