: I seem to remember that it was when Bilbo and co. were attacked while they were resting in a cave in the Misty Mountains. When a couple of goblins attacked Gandalf it said there was a bright flash of light and the smell of "...powder". I can't remember the exact word used but I always had the idea that some kind of blasting powder was available though not necessarily something the common folk would have.

I seem to remember in The Hobbit a passage talking about how goblins loved to invent devices of torture and such. It also says that they delighted in explosions and other things of that sort.

-Valgus