In Baldur's Gate, it's sold at the Ulgoth's Beard Inn in the Tales of the Sword Coast expansion pack. In the Enhanced Edition it's sold in the shop of Elan Garaq in tier 2 of the Black Pits.
In Baldur's Gate II, this item is sold by a merchant in Trademeet after the trouble with the djinni's is sorted out.
|“||The Cloak of Displacement is a magical item that causes subtle shifts in the image of its wearer. It has the power to actually shift an individual's image by much as six inches in any direction from their actual location. Aside from being an effective defense in combat, it has also been the cause of serious eyestrain amongst fellow party members.||”|