Before I discuss the cloak, I want to mention a few things about Varina.  In the Chronicles, Varina is an amulet that Nibel brings with him from the World of the Dwarfs.  The gemstone hangs on a wooden peg in Nibel's underground workshop.  Varina was part of the treasure that Nibel and his broher, Ragand, stole from their father, the dwarf king, Reid.  Nibel eventually falls in love with Varina.  The gemstone, as fate would have it, turns out to embody a curse place on it by Reid. The curse causes Nibel to turn into a lizard each night at the stroke of midnight.  The transformations are painful. Once in the lizard persona, Nibel can only survive deep inside the Poisoned Forest.  Then at dawn, he changes back into the dwarf persona.  Again, the transformation is painful.  The moral of the story, of course, it isn't good to be greedy :)

Now to understand Varina, we have to go back to Norse mythology.  So here goes.  There was a dwarf by the name of Andvari.  He lived under a waterfall and could turn himself into a fish whenever he wanted.  So one day, he does this and is enjoying an early morning swim.  Bad idea.  Loki, a rather complicated character ( not a dog :) catches the fish, Andvari, and forces him to give up his treasure including the ring, Andvaranaut.  ( the ring turns out to be the magic behind all of Andvari's golden treasure.)  In revenge, Andvari places a curse on the treasure.  The curse, of course, causes ruin to anyone seeking to gain by the riches. 

Loki eventually gets the picture and hides the treasure in a cave.  Years latter, Andvari finds the treasure. However, the magic ring, Andvaranaut is missing !!!! 

More latter !!!