Mad, I don't think there were difficulty settings. Gothic starts out difficult and gets easier as the game goes on. You just have to stay in the safer areas until you get stronger. You can go everywhere in the game, so it is possible to take out major enemies by climbing up on top of things. Your choice of skills is important, too. Once you've gone up a weapon tree or two and upped your stats, you're good to go. I always liked the magic/ranged combo in Gothic, with some sword skills thrown in for unavoidable close encounters. They're great games, I think.
No fancy-pantsy Elven dagger-twirlers. Just tough guys.