Since 1.4.1, the game compares the name of the item the NPC intends to give to you to a very large list of related terms, and for weapons and equipment specifically, skips calling the LLM for categorization completely. Evidently this doesn't work that well or there wouldn't be someone talking about it 3 days after the patch, so I'll revert this change (or rather have the LLM call as a fallback).
Less niche terms like items containing "ring" or "sword" in their name should always match with fitting items though, and this did work flawlessly during testing.