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Gungnir begins in the year 983 and takes place in the empire of Gargandia, a country populated by two races: the upper-class Daltania and the peasant Leonica. The Leonica race is regarded as "cursed" for yet unknown reasons, and is subjected to harsh class discrimination.

Because of this and incidents such as the "Espada Massacre" that occurred over fifteen years ago, a group of Leonicans aided by Daltania sympathizers has formed a resistance army called Esperanza. Their resistance is, however, badly outmatched and struggling.

One day, a young platoon leader in Esperanza named Giulio comes upon a slave trader taking a kidnapped Daltania girl out of the country, and he and his men rescue her. He welcomes the girl, Alissa, into Esperanza, although she worries what response this will bring from the Daltania military.

Shortly after this, during a desperate battle that appears as though it may cost Giulio's life, a powerful demonic weapon appears before him. Identifying it as the demon lance Gungnir, he decides to take it up, and uses it to seize victory from the jaws of defeat, striking terror into the hearts of many. Giulio and Esperanza come to believe that Gungnir will give them the power they need to win the war with the ruling class, but this acquisition causes Giulio's destiny to begin moving.