These creepy things are Bling Gnomes:

They have two purposes in life: to pick up the gold that drops from enemies that you kill, and to convert unwanted items into gold. They do the latter by doing a little dance and anything on the ground of a certain quality or lower will disappear and the gnome will defecate a stack of gold coins.

No, really.

But, he has a little quirk... well, several, but we're only going to talk about one today.

You can't use your little gnome friend to clear out your inventory on the middle of a dungeon run.

Anything that's been in your inventory, or that you tried to pick up, but wouldn't fit in your backpack and then dropped back on the ground he won't consume. I don't really know why, maybe your hands are dirty?

Any of those items that you've sullied with your contact have to be lugged back to town to sell, so you have to decide if you want them before picking them up.