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I had the same issue and found the game to be frustratingly vague on what I was supposed to do.
Turned out that when I used the Long Rest / Camp option and I sent Gale to sleep, a talking cat with wings called (?) Tate appears and gives him an item. This item is described as being a magical artefact that Gale is told he has to consume. I completely missed the significance of this at the time and on resuming the save, wondered why Gale was crouching as if injured and why his health kept dropping to 13 out of 21.
Well, it so happened that one of magical rings (a pink/purple one) in my inventory, which I thought I'd found from looting and had equipped, was actually the artefact that Tate had given Gale to consume. Right-clicking on this ring after unequipping it gave me the Consume option, which isn't available for other non-magical rings. Once 'eaten', Gale's stance returned to normal and the Arcane Hunger icon disappeared.
I am really enjoying this game but I feel some aspects of it are not very well explained. There aren't much in the way of actual tutorials for beginnings apart from the initial ones on the flying ship at the start.
When the Arcane Hunger tag first comes up, DO NOT INTERACT WITH HIM when the (!) sign appears over his head. Instead, transfer an artifact to his inventory, select him as a character, right click on the artifact and Consume.
As long as you don't trigger that initial donate screen, it seems to be fine!
(You will also get the Approval and the dialogue from this, don't worry!)