Which is why, in at least one of my homebrews, Gnomes are true fey. Including mystical powers and weaknesses.Yep. Gnomes exist to fulfill the weird, funky little folkloric and fairytale elf role that went unfulfilled when D&D got the elegant, pretty Tolkien elves as its elves.
They also get all the spare folkloric traits of dwarves after D&D's Tolkien-derived dwarves got what they did.
Basically Gnomes are a grab bag from the remnant folkloric attributes for fey peoples that Tolkien didn't use.
Similarly, that setting had Dwarves as a kind of Earth Elemental.