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The Golden Compass is an adaptation of the 2007 movie of the same, which in turn is based on the novel Northern Lights, the first in the His Dark Materials trilogy by British novelist Philip Pullman.

The game is set in a fantastical parallel universe where the soul of person resides out of the body and lives in the form of animals known as dæmons. The main character is Lyra Belacqua. Her best friend Roger is kidnapped by evil Gobblers and her uncle Lord Asriel is imprisoned when he discovers evidence that proves the existence of Dust particles, much to the dismay of the Magisterial representatives who rule the world as a dogmatic theocracy and do not allow people to contradict their doctrine. Lyra has to leave the safe haven that is Jordan College in Oxford to right the situation.

In typical 3rd-person action gameplay, Lyra needs to navigate the different environments. She excels at moving around with acrobatic actions and when enemies appear she relies on her wit, hiding behind objects or searching an escape route. When she is spotted, she can use one of the four collectibles to escape from a tricky situation. Health is represented as "courage" and a large extent of courage helps solving the puzzles. She can also play a Deception mini-game to outwit characters and gain additional courage.

Two other characters provide assistance her during her quest. The first is Pan, Lyra's dæmon and the manifestation of her spirit. Pan can transform into up to four different forms, gradually discovered during the quest. The basic Ermine form allows Pan to chew through ropes and reveals the areas where Lyra needs to solve puzzles or move around. The Sloth form introduces swinging to grab hold of branches or reach areas hard to access. The third form, Hawk, lets Lyra glide from great heights. She can also send out Pan in this form to retrieve objects at difficult locations. The final Wildcat form has Lyra slide down from special surfaces, climb nets and it provides a dash move to evade enemies.

Brute strength is represented by the second support character Iorek Byrnison, an armoured bear known as panserbjørne. He has most of the physical attacks. Next to health (replenished by bloodmoss) he has an armour gauge, filled up by gathering sky armour. Collected rage orbs fill up a rage meter, which introduces a special attack when maxed out. Pan is always by Lyra's side, while Iorek joins the party later in the game and he is not always present.

Lyra's journal stores her tasks, information about key locations and a section for the Alethiometer, the golden compass. It is a device that reveals the answer to any question when operated by a trained user. It contains four needles - three to construct a question and fourth for the answer. To ask questions and solve puzzles, Lyra needs to play the Divining game. It consists of three sessions where Lyra needs to match symbols to keep the focus (a circle of light) centred on the device, by pressing a key or button to spin a hand in a timely fashion. The meaning of the different symbols is revealed during the course of the game, by interacting with objects and characters. Conversations often introduce mini-games to keep the talking going.

Each of the characters can pick up objects that grant new abilities such as new forms, a slow spell, double damage or more insight into the workings of the Alethiometer.