It was used to "create" Amulets for the journey to the Fire Dojo.
When a player wore this item and danced with it, they would start hitting a golden anvil with a hammer. The player could also wear a Ninja Mask with it.
There was a team of smithies in the video series #WaddleOn, named the "Goldsmith Force" who wore the Goldsmith Apron. In the show, they would always fix "valuable" objects.