Goblins were at one time real, and people saw all around them evidence of their existence. This was so because of the way the human mind works. Given that we interpret reality through mental paradigms, and that before the advent of science the dominant paradigm was animism–the belief that everything in nature was, in one way or another, a type of person–our ancestors saw in what we would nowadays call natural phenomena agency. For them everything that happened was caused by someone or some thing; therefore, when a tree fell, it was because someone pushed it down or cut it down.
Coincidences and accidents could not exist within this mental paradigm; the entirety of reality was interpreted as being animated. What we now see as natural forces, impersonal forces, was–and not so long ago, really–seen as the workings of some either benevolent or malevolent entity. So within this paradigm goblins did exist in so much as the natural processes they were meant to explain existed.
Goblins, as well as the other myriad of fantastic creatures believed to exist, served an explanatory function, explaining such things as embarrassing accidents and diseases, and everything else that required an explanation. Mysterious deaths could also be blamed on them. The existence of goblins could not be doubted as the consequences of their actions were readily apparent for all eyes to see. Thus, goblins were real because the human mind cannot tolerate a vacuum and would prefer a bad explanation to none at all.
If we take ourselves as a point of reference, using our own mental and emotional framework as a model for interpreting nature, every aspect of reality becomes personified. And we reflect this personification of nature by the images we create to represent them, treating those forces that benefit us–like the coming of Spring, recovery from a disease, etc.–as beautiful–fairies, unicorns, elves–and those that harm us–earthquakes, diseases, violent storms, etc.–as ugly–trolls, ogres, goblins. We do this because we use our own intentionality as a guide for understanding the world outside us. And insofar as understanding other mammals, it usually works. If a growling, snarling, salivating Grizzly bear is coming your way, it’s a pretty safe bet to assume it does not want to play. Unfortunately, the human mind is a notorious generalizer, and it applies its own intentionality to everything it encounters. Hence, we have things like ‘angry storms, cruel winters, earthquakes as punishment,’ and such.
Therefore, while we cannot say that goblins existed based on our current scientific paradigm, based on an earlier paradigm they clearly did. The evidence for the existence of the goblin and of all sorts of fantastic creatures, based on the earlier paradigm, was overwhelming.